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Proven. Purpose. Progress.
NYSE: WTRG
2023 ANNUAL REPORT
2023 YEAR IN REVIEW
Proven: OUR FOOTPRINT
9
states
5.5 million
people served
1.9 million
customer connections
3,200+
employees
Purpose: OUR IMPACT
4,700+
employee
volunteer hours
$5.5M+
in charitable
donations
450+
community organizations
supported
Progress: OUR INVESTMENT
443
miles of pipeline
replaced or retired
$1.2 billion
in infrastructure
improvement
7
acquired water
and wastewater
systems
11,000
new customer
equivalents gained
SI G N ED ACQU I S I T I O N AG REEM EN T S A S O F Y E A R EN D
6
water &
wastewater systems
215,000
total customer
equivalents
~$380 million
total purchase
price
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A WORD FROM OUR CHAIRMAN & CEO
Dear Shareholder,
In March 2024, we celebrated four years as Essential Utilities after
combining two companies that collectively enjoy more than 260
years of successful operations. When I reflect on what we’ve
accomplished in that time – the success we’ve achieved, lessons
we’ve learned and milestones we’ve reached – one thing is clear:
together we are among the strongest utilities in the United States.
Four years ago, our premise was that we could put Aqua and
Peoples together and create a large, regulated, underground pipe
company. We believed then – and still believe today – that we could
use our combined operational expertise, financial strength and
regulatory credibility to continuously improve our water and natural
gas infrastructure while providing a regulated and fair return for our
shareholders.
Our sharp focus on operational excellence has allowed us to
consistently provide high-quality service to our customers. In
fact, our water utility regularly and significantly outperforms the
U.S. average for water quality compliance. These are remarkable
accomplishments for even the best utilities in the United States.
When we announced the combination of Aqua and Peoples in
2018, some had doubts about whether the companies could
be successfully combined and operated. We had a lot to prove!
Since then, we have invested $1.7 billion to improve natural gas
infrastructure including the replacement or addition of nearly
1,200 miles of natural gas mains. In 2023, we invested more
than $527 millon in natural gas infrastructure improvements to
increase safety and reliability across the natural gas platform.
These improvements also allowed us to reduce our carbon footprint
by nearly 30 percent since the acquisition of Peoples by decreasing
stray methane emissions.
Although natural gas was a new priority for us, we never lost
focus on the water business. Since 2020, we have invested more
than $2.4 billion on water projects including the replacement of
more than 600 miles of water main. We are meeting the nationally
recognized challenges associated with lead service line removal and
PFAS contamination by addressing these issues with scientifically
sound treatment and technology. As of this publication, the EPA
is still writing the PFAS regulations, but we will fully comply with
federal and state regulations once they are promulgated.
Another advantage to our combined company has been the ability
to use the strong reputation of Peoples to grow our water utility in
the Pittsburgh region. While we have no plans to acquire additional
natural gas utilities, we have completed one water transaction and
have several others under consideration in western Pennsylvania.
Leveraging the reputation and relationship of the Peoples team has
made these transactions possible.
Essential continues to build on our history of growth through
acquisition, with a strategy of investing in water and wastewater
systems that are struggling to meet increasingly stringent
regulatory, environmental and/or cybersecurity demands. By
leveraging our compliance expertise, purchasing power and
operational efficiencies, we have infused needed capital and
resources into the systems we own and acquire to rehabilitate the
infrastructure required for reliable and safe services.
In 2023, Essential’s regulated water segment acquired seven
systems, collectively adding over $44.5 million in rate base and
more than 11,000 new customers or equivalent dwelling units to
our footprint. Additionally, we have six signed purchase agreements
for additional wastewater systems in two of our existing states that
are pending closing. Together these systems represent over 215,000
equivalent retail customers
or equivalent dwelling units
and total approximately $380
million in purchase price.
Throughout this report,
we’ve detailed our work
in 2023 to deliver on our
company’s mission: to
sustain life and improve
economic prosperity by safely
and reliably delivering Earth’s
most essential resources
to our customers and
communities. I’m immensely
proud of Essential Utilities’
PROVEN track record and
deep PURPOSE that drives the work we do every day. And – as we
look ahead – we’re committed to continuing to drive PROGRESS
for our customers and the communities we serve resulting in
shareholder value.
Essential’s long history of operational and compliance expertise
has earned us a reputation as a trusted community partner. In
2023, we were proud to lend our expertise in times of need,
including stepping in to operate a troubled water system in Western
Pennsylvania at the direction of the DEP, and utilizing our lab testing
capabilities to support the EPA and the Greater Philadelphia region
during a chemical spill in the Delaware River. Our operational
capabilities have also enabled us to take proactive measures to
protect our water customers against contaminants of emerging
concern, including PFAS and lead.
Above all, we take our responsibility as a corporate citizen seriously.
In 2023, our investment in the community included more than
$5.5 million from the Essential Foundation, providing funding to
organizations that create positive outcomes for the environment,
address human services and food insecurity, encourage diversity
and inclusion, focus on economic growth and development,
support education, and protect emergency services.
We remain focused on ensuring that our employee base and
procurement of goods and services reflect the complexion of the
communities we serve. You can learn more about our ongoing
commitments by reading our latest sustainability report at ESG.
Essential.co.
When we chose the name “Essential Utilities” for our newly formed
company in 2020, it was no accident. After all, the work we do
every day is truly essential, and we take that responsibility seriously.
The services we deliver – 24 hours a day, 365 days a year, to millions
of people in homes and businesses across our footprint – are critical
to sustaining life and fueling the economy.
I’m grateful to all who make this work possible: our employees, our
customers and our shareholders. Together, we are well-positioned
to build upon our longstanding track record of operational
excellence and growth throughout 2024 and beyond. Thank you for
your support and your confidence.
Christopher H. Franklin
Chairman and CEO,
Essential Utilities Inc.
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2023 FINANCIAL HIGHLIGHTS
In thousands, except per-share amounts
2023
2022
% Change
Operating Revenues
Regulated Segments:
$2,053,824
$2,288,032
-10.2%
Regulated Water Segment Revenues
$1,153,376
$1,082,972
6.5%
Regulated Natural Gas Segment Revenues
$863,759
$1,143,362
-24.5%
Operations and Maintenance Expense
$575,518
$613,649
-6.2%
Net income
Capital Expenditures
$498,226
$465,237
7.1%
$1,199,103
$1,062,763
12.8%
Diluted net income per common share
$1.86
$1.77
5.1%
Annualized dividend rate per common share (12/31)
$1.2284
$1.1480
7.0%
Total Assets
$16,841,459 $15,719,107
7.1%
Number of utility customers served (12/31)
1,857,461
1,851,586
0.3%
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Diluted Adjusted Income per Common Share
Dividends per Share (annualized)
$1.86
$1.77
$1.67
$1.47
$1.27
$1.003
$0.937
$1.228
$1.148
$1.073
2019 (1)
2020 (2)(3)
2021
2022
2023
2019
2020
2021
2022
2023
Capital Investment (in millions of dollars)
Utility Customer Connections
$1,199.1
Natural Gas
Water
751,502
753,244
756,341
743,746
$1,020.5
$1,062.8
$889.1
$550.3
1,026,704
1,047,301
1,066,805
1,095,245
1,113,715
2019
2020 (4)
2021
2022
2023
2019
2020
2021
2022
2023
(1) 2019 Net income per share was $1.04 (GAAP). 2019 adjusted for transaction costs and other items related to the Peoples transaction (Non-GAAP).
(2) 2020 Net income per share was $1.12 (GAAP). 2020 adjusted for transaction costs and other items related to the Peoples transaction (Non-GAAP).
(3) Includes Peoples’ operating results as of the closing date of the Peoples acquisition on March 16, 2020.
(4) 2020 Capital investment includes $53.5 million of capital invested by Peoples prior to closing.
Please see the investor relations page of Essential.co for a reconciliation of GAAP to non-GAAP financial measures.
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OPERATIONS & ENVIRONMENT
BETWEEN 2023-2025
$3 BILLION+
to be invested in
US infrastructure
1,300+ MILES
of pipeline to be replaced
That’s the distance traveling from
New York City to Miami!
PROGRESS
Addressing Our
Nation’s Infrastructure
One of the greatest challenges facing the United States is the
rehabilitation of our nation’s crumbling infrastructure. Essential –
now the largest publicly traded water and natural gas distribution
company in the United States – is well positioned to play a leading
role in addressing this critical need. In 2023 alone, we invested
$1.2 billion into replacing 443 miles of aging water and natural gas
pipeline across our footprint.
Our investment in capital improvement is a true win-win for all our stakeholders,
including shareholders, customers and the environment. By leveraging our
compliance expertise, purchasing power and operational efficiencies, we have
infused needed capital and resources into the systems we own and acquire to
rehabilitate aging infrastructure. Our capital program is the primary driver of the
growth in our earnings per share. It’s also critical work, ensuring that our customers
continue to receive reliable and safe service by significantly decreasing the
likelihood of pipeline breaks and service interruptions.
Quantifying America’s Water & Wastewater Infrastructure Crisis
According to the American Society of Civil Engineer’s latest “Report Card for America’s
Infrastructure,” there is an enormous gap of $434 billion between our country’s current
investment in water, wastewater and stormwater infrastructure and what is needed to improve
and modernize our systems.
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26%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2019
2023
2035
Our Reduction in Greenhouse Gas Emissions
PROGRESS
Investing in Our Natural
Gas Pipelines
In Pennsylvania, our gas utility is currently operating against a
strategic 20-year Long Term Infrastructure Improvement Plan (LTIIP).
Under the current phase of the LTIIP, we will invest $1.5 billion
to replace 871 miles of aging gas pipeline between 2021 and
2025. Three years into this phase, we are proud to report we are
more than halfway to our goal, having replaced 551 miles of pipe at
an investment of $968 million.
One of the most significant LTIIP projects is a seven-year initiative to
replace more than 300 miles of pipeline in the Goodwin/Tombaugh
system to ensure we can safely deliver natural gas to homes and
businesses, protect the environment by reducing methane, and
keep energy accessible and affordable. In year four, we are proud to
report we have replaced or retired from service 159 miles of pipe,
or approximately 51% of the total system, and have invested $40
million, or 33% of the total target investment.
PROVEN
Assisting a Troubled
Water System
In August 2023, the residents of the Village of Reno in Sugarcreek
Township, Pa. (VWC) had been under a “Do Not Consume” order
by the Pennsylvania DEP due to water quality concerns for nearly
one month when the Pennsylvania Public Utility Commission ordered
Essential’s water utility to operate the troubled water system under a
receivership.
The team immediately jumped into action, working with the community
to provide bottled water to impacted customers, stabilizing the
VWC system to ensure customers had access to non-potable water
for sanitary use, flushing the system to help remove potentially
contaminated water, and hauling in clean water from a nearby
Essential-owned system while also seeking out a long-term solution.
In less than three weeks, our team lifted the “Do Not
Consume” order for customers. Our water utility has a long history
of stepping in to operate troubled water and wastewater systems
when they fall out of compliance, and we’re proud to have the
expertise and operational efficiencies necessary to help the customers
and community served by the VWC when they needed it most.
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2023 Annual Report | 5
PROVEN
Decisive Action and Collaboration
During a Water Crisis
In March 2023, Essential’s water utility was notified that more than 8,000 gallons of
hazardous material entered the Delaware River, just downstream of our Bristol Water
Treatment Plant that serves 30,000 Aqua customers. Our operations team jumped
into action and immediately shut down the intake to our Bristol water system,
preventing customer exposure to the hazardous chemicals.
With our water supply safe, our lab technicians worked around the clock, using our
advanced technology to quickly test water samples from the river to support the EPA
and other impacted utilities in the area. Our fast turnaround time allowed our water
utility and other leaders to make real-time decisions to support the safety of the region.
PROGRESS
Taking Aggressive Action
Against Forever Chemicals
PFAS, also known as “forever chemicals,” is a group of toxic chemicals used for a wide
range of items, from non-stick cookware to firefighter training, and it impacts more
than 30% of the country’s water supply.
In 2023, the EPA introduced federal rules on safe levels of PFAS in drinking water – but
Essential didn’t wait for that guidance to start our work. We began testing for PFAS
chemicals in 2017, and in 2020, we set our own limits on PFAS in the water systems
we managed to help guide our treatment response. Since then, we’ve been building
treatment facilities and voluntarily incorporating testing into our customer water
quality reports. We’re working to find alternative funding sources and holding chemical
companies and others responsible for PFAS accountable to offset the potential financial
impact to our customers.
With the introduction of an EPA standard, we welcome the government to the fight
against these toxins and will continue to lead the industry in meeting these standards.
PROGRESS
Reducing Potential Risks from
Lead in Drinking Water
Lead contamination poses a serious threat to the safety of drinking water, in both water
mains and through service lines that deliver water to customers’ homes. According to
the EPA, there are an estimated 9.2 million lead service lines currently serving water to
properties in communities across the United States.
We routinely treat water to reduce the chance of lead and other materials leaching
into the water, ensuring regular compliance. When it comes to service lines, we’re
inventorying all customers’ water service line materials and replacing any lead service
lines that we identify through our Lead Service Line Replacement Program. We’ve
launched these programs in Pennsylvania, New Jersey, Ohio and Illinois, with plans to
expand across our footprint. In New Jersey specifically, we’ve already replaced nearly
2,100 services and completed 84% of our service line inventory far ahead of schedule.
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PURPOSE
Earning Accolades for Our
Commitment to Sustainable
and Ethical Business Practices
Our commitment to the environment runs deep. After all, when
your business is providing safe, reliable water and natural gas,
as well as managing wastewater treatment and redistribution,
being a great steward of the environment is a core requirement.
Essential’s recent ESG achievements include reaching ambitious
company-wide greenhouse gas (GHG) emissions reduction goals
against our 60% reduction goal by 2035; achieving diverse
supplier and employee commitments, ensuring the company’s
procurement and team reflects the communities we serve; and
donating more than $5.5 million to local organizations.
As a result of our commitment, we were honored to be
named to Newsweek’s list of America’s Most Responsible
Companies for the third consecutive year in 2024. You can
learn more about Essential’s commitment to the environment,
our employees and our communities at ESG.Essential.co.
PURPOSE
Protecting Our Local
Watersheds
As one of the nation’s largest water and wastewater providers,
we understand the importance of local watersheds to our
ecosystem – and the critical role they play in enabling us to
deliver clean and reliable water to our customers.
In 2023, our water utility was honored with the Perkiomen
Watershed Conservancy’s Corporate Environmental
Award in recognition of our ongoing work to protect and
preserve Pennsylvania’s Perkiomen Creek and its tributaries.
We recently completed a large-scale project to decommission
obsolete dams from the creek and continue to work with
community partners to plan future improvements, as the
Perkiomen Creek feeds our water utility’s Green Lane
Reservoir and is a significant source for our main southeastern
Pennsylvania drinking water system.
We also proudly partner with the Conservancy on the Floating
Classroom science program, which combines environmental
education, kayaking and lab work into one immersive
educational experience for local students.
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2023 Annual Report | 7
PEOPLE
PEOPLE
Valued employees continue to grow, no matter their job title
or tenure. Because our talent lives and works in the communities
we serve, our employees are an extension of both our mission
and our customer base – and we believe their success lies at the
intersection of professional support and personal support.
PROVEN
Creating Opportunities for
Talent Retention and Growth
Our employees are our greatest asset and are empowered to develop their
professional skills to not only open doors for career advancement within the
company but also to stay on top of industry trends. In fact, more than 90% of
Essential’s employees take advantage of our talent-specific professional
development offerings.
Our talent management program starts with hiring practices that bring
in candidates with potential to grow and lead, and continues with strong
onboarding, employee relations and talent management programs. These
programs are reviewed annually to ensure they help reach Essential’s
organizational goals and offer value to employees in their personal lives.
We employ a 70-20-10 approach to professional development: 70%
of development occurs in practice and on-the-job feedback, and 20% of
development occurs through feedback from assessments, while 10% of new
knowledge is acquired through structured learning experiences.
PROVEN
Supporting Our
Employees to Create
a Culture of Success
Our Employee Resource Groups (ERGs) offer
employees space to be themselves and reflect
on the effect of their lived experiences on the
work they do, allowing them to come to the
table feeling more accepted, understood and
ready to work. We have several employee-
created ERGs, including the Diversity and
Inclusion Council; Veterans and Military
Resources Committee; Pride Resource Group;
Black Resource Group; Women’s Resource
Group; and Women in Energy Resource Group.
As Essential continues in its efforts to hire,
retain and promote diverse candidates, our ERGs
remain an important resource that strengthens
our workforce, in turn strengthening our
business. In 2023, 100% of job requisitions had
a diverse candidate pool inclusive of women
or people of color, and 49% of our external
hires were women or people of color.
Further, 37% of year-over-year transfers
and promotions are filled with employees
who are women or people of color.
PROVEN:
Champion of Board Diversity
In 2023, Essential was named a “Champion of Board Diversity” for the
fifth year in a row by the Forum of Executive Women. 50/50 Women
on Boards also recognized Essential as a “3+ Company,” a designation
given to companies with at least three women on their boards.
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INDUSTRY LEADERSHIP
At Essential, we’re proud of our role as a leader within
the utility industry, and we value the opportunity to
gather with our peers to share innovations and best
practices, showcase our expertise and lead important
discussions about the future of the industry.
At the National Association of Water Companies’ 2023
Water Summit, Essential Utilities’ CEO Christopher Franklin
sat down with Joe Scarborough, cohost of MSNBC’s “Morn-
ing Joe,” (pictured above) to highlight Essential’s commit-
ments, key learnings and industry leadership in 2023.
PROGRESS
Transforming Natural Gas for
the Future of Clean Energy
Western Pennsylvania has long been an energy pioneer. Now,
through hydrogen technology, it’s poised to be at the forefront of
the clean energy transition.
In 2023, Essential hosted its second H2 Summit, an annual
meeting developed in response to the federal government’s call
for regions to be named Hydrogen Hubs. The event has helped
keep Essential on the cusp of innovation by coordinating with
other regional partners invested in creating a Hub in Western
Pennsylvania, and leading the company to join the Appalachian
Regional Clean Hydrogen Hub (ARCH2). Shortly after the summit,
ARCH2 was selected as one of seven Hydrogen Hubs to receive
federal funding to build out capacity and infrastructure for
hydrogen production and distribution.
Essential’s natural gas
Es
ut
utility has infrastructure
in place that can begin the
in
hy
hydrogen transition safely
and economically to deliver
an
hy
hydrogen to millions of
ho
homes and businesses
ac
across the Western
Pe
Pennsylvania region.
During the American Water Works Association’s Water
Infrastructure Conference, Colleen Arnold, Essential’s wa-
ter and wastewater utility’s president, served as the keynote
speaker. Other Essential speakers discussed crisis communica-
tion, water distribution model calibration, IT/IOT convergence
in the utility sector and climate risks and opportunities.
In Pittsburgh, Mike Turzai, vice president of Essential’s gas
utility, continued the conversation about maintaining and
modernizing infrastructure as the keynote speaker for the
14th annual Appalachia Energy Law Conference.
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CUSTOMERS & COMMUNITY
Second Annual
Essential Earth Day
Essential Earth Day is a month-long celebration that
focuses on our commitment to the environment in
April. In 2023, we held more than 30 volunteer events
and educational opportunities, and donated more than
$450,000 to support environmental causes during the
month of April.
PURPOSE
Serving Our
Communities Beyond
Water and Gas Services
At Essential, we know that when our communities thrive, we thrive
too. Just as we upgrade and replace our infrastructure to provide
clean, safe, reliable resources to our customers, we seek to partner
with other organizations that are as dedicated to the prosperity of
the communities we serve.
In 2023, the Essential Foundation continued its extensive work to
enhance the communities we serve through employee volunteerism
and donations to impactful organizations that reflect our values
and resonate with our employees. We donated in our focus areas of
environmental initiatives, direct human services, emergency services,
community economic growth, education and employee support.
By the Numbers
More than 1,000 Essential employees
volunteered more than 4,700 hours
The Essential Foundation donated more than
$5.5 million to more than 450 deserving
organizations in 2023, with $5 million going
to 501c3 organizations
Fall for Food Banks
The Fall for Food Banks program partners Essential
employees with local food banks through charitable
donations, food collections and volunteer events.
In 2023, we distributed more than $313,000 and
logged more than 700 volunteer hours – doubling the
volunteer commitment from 2022. This effort provided
needed support for more than 25,000 people across
nine states.
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PURPOSE
Supporting and Educating
our Customers
We believe access to water, wastewater and natural gas
services is a fundamental human right. From improving
the infrastructure that carries these essential services to
providing our customers with resources to educate and
empower them, we’re committed to ensuring our services
safely and reliably reach our customers by meeting them
where they are.
For customers who face challenges in managing their utility
expenses, we’re proud of the progress we’ve made as a
utility and a community partner to offer comprehensive
Customer Assistance Programs and other financial support
options. These programs give customers peace of mind and
a grace period as they work to pay down their utility bills
– because water and natural gas should always be available.
Through our dedication, leadership and unwavering
commitment to the people we serve, Essential and
our water and gas utilities received national and local
recognition for our work in 2023, including scoring #1
in J.D. Power’s customer satisfaction study among
midsize water utilities in the Midwest region.
PROGRESS
Surpassing Supplier
Diversity Goals
At Essential, diversity is about more
than checking a box; it’s ingrained in
the way we do business. This extends to
the organizations we choose to work with.
Through our supplier diversity program,
we proudly partner with locally owned
businesses, which not only allows us to
support economic growth in our service areas
but also boost customer loyalty.
Essential is committed to increasing
investments with small businesses owned
by minorities, women, individuals with
disabilities and veterans. In our multi-year
plan announced in 2021, we vowed to
increase our supplier diversity to 15% of our
controllable spend. By 2022, we reached this
target, and in 2023, we increased our supplier
diversity to 18.1%.
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2023 FINANCIAL DATA
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands of dollars, except per share amounts)
3210
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report (the “Annual Report”) are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are made based
upon, among other things, our current assumptions, expectations, plans, and beliefs concerning future events and their
potential effect on us. These forward-looking statements involve risks, uncertainties and other factors, many of which are
outside our control that may cause our actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by these forward-looking statements. In some cases you
can identify forward-looking statements where statements are preceded by, followed by or include the words “believes,”
“expects,” “estimates”, “anticipates,” “plans,” “future,” “potential,” “probably,” “predictions,” “intends,” “will,”
“continue,” “in the event” or the negative of such terms or similar expressions.
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;
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3) our ability to manage the expansion of our business;
(cid:120)(cid:3)
(cid:120)(cid:3) our ability to integrate and otherwise realize all of the anticipated benefits of businesses, technologies or
changes in environmental conditions, including the effects of climate change;
(cid:120)(cid:3)
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;
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3) our ability to file rate cases on a timely basis to minimize regulatory lag;
(cid:120)(cid:3)
(cid:120)(cid:3)
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;
(cid:120)(cid:3)
(cid:120)(cid:3) our ability to treat and supply water or collect and treat wastewater;
(cid:120)(cid:3) our ability to source sufficient natural gas to meet customer demand in a timely manner;
(cid:120)(cid:3)
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.(cid:3)
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;
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3) our ability to retain the services of key personnel and to hire qualified personnel as we expand;
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
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;
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:20)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
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.
Given these risks and uncertainties, you should not place undue reliance on any forward-looking statements. You should
read this Annual Report completely and with the understanding that our actual future results, performance and
achievements may be materially different from what we expect. These forward-looking statements represent assumptions,
expectations, plans, and beliefs only as of the date of this Annual Report. Except for our ongoing obligations to disclose
certain information under the federal securities laws, we are not obligated, and assume no obligation, to update these
forward-looking statements, even though our situation may change in the future. For further information or other factors
which could affect our financial results and such forward-looking statements, see Item 1A – Risk Factors in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2023.
OVERVIEW
The following discussion and analysis of our financial condition and results of operations should be read together with our
Consolidated Financial Statements and accompanying Notes included in this Annual Report. This discussion contains
forward-looking statements that are based on management’s current expectations, estimates, and projections about our
business, operations, and financial performance. All dollar amounts are in thousands of dollars, except per share amounts.
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. One of our largest operating subsidiaries, Aqua Pennsylvania, Inc. (Aqua Pennsylvania), provides water
or wastewater services to approximately one-half of the total number of water or wastewater customers we serve. These
customers are 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. Approximately 95% of the total number of natural gas utility customers we serve are in western
Pennsylvania. 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.
In December 2022, the Company signed an agreement to sell its regulated natural gas utility assets in West Virginia,
which represented approximately two percent of the Company’s regulated natural gas customers. The sale closed on
October 1, 2023 for an estimated purchase price of $39,965, subject to working capital and other adjustments. The sale
concluded the Company’s regulated utility operations in West Virginia. In October 2023, the Company entered into an
agreement to sell its interest in three non-utility local microgrid and distributed energy projects for $165,000. The sale
was completed in January 2024. These transactions are consistent with the Company’s long-term strategy of focusing on
its core business and will allow the Company to prioritize the growth of its utilities in states where it has scale. The
Company intends to use the proceeds from these transactions to finance its capital expenditures and water and wastewater
acquisitions, in place of external funding from equity and debt issuances. See Note 3 – Assets Held for Sale and
Dispositions in the Notes to Consolidated Financial Statements for additional information.
(cid:21)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
Recent Developments
National Primary Drinking Water Regulation
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 per- and polyfluoroalkyl substances or compounds
(“PFAS”), which would establish legally enforceable levels for PFAS 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 (the “Compliance
Period”). 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. The Company performed its initial analysis of the
NPDWR and estimates an investment of at least $450,000 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. Additionally, the Company
estimates annual operating expenses of approximately five percent of the installed capital expenditures, in today’s dollars,
related to testing, 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. The Company
continues to advocate for actions to hold polluters accountable and is part of the Multi-District Litigation and other legal
actions against multiple PFAS manufacturers and polluters to attempt to ensure that the ultimate responsibility for the
cleanup of these contaminants is attributed to the polluters and is seeking damages and other costs to address the
contamination of its public water supply systems by PFAS. Capital expenditures and operating costs required as a result of
water quality standards have been traditionally recognized by state utility commissions as appropriate for inclusion in
establishing rates; however, we are also actively applying for grants and low interest loans, whenever possible, to reduce
the overall cost to customers. The Company is also monitoring ongoing litigation and settlement activity with
manufacturers of PFAS in these proceedings. For more information, see Part I, Item 3—Legal Proceedings in our Annual
Report on Form 10-K for the year ended December 31, 2023.
Lead and Copper Rule Revisions and Improvements
On January 15, 2021, the EPA published the Lead and Copper Rule Revisions (LCRR) which details additional measures
to better protect communities from exposure to lead in drinking water. 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. On November 30, 2023, the EPA
announced a proposed Lead and Copper Rule Improvements (LCRI) to further strengthen the key elements of the LCRR.
The proposed LCRI includes, among others, a requirement to replace lead service lines within 10 years, lower lead action
levels, changes to tap sampling protocol, and enhancements to public notification and customer communication. We are
still in the process of reviewing the overall impact of the proposed LCRI. Capital expenditures and operating costs
associated with compliance with any of these rule revisions will be determined once the EPA finalizes the rule.
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. The utility commissions also generally establish uniform systems of
accounts and approve the terms of contracts with affiliates and customers, business combinations with other utility
systems, and loans and other financings. The policies of the utility commissions often differ from state to state and may
change over time. A small number of our operations are subject to rate regulation by county or city government. Over
time, the regulatory party in a particular state may change. The profitability of our utility operations is influenced to a
great extent by the timeliness and adequacy of rate allowances in the various states in which we operate. One
consideration we may undertake in evaluating on which states to focus our growth and investment strategy is whether a
state provides for consolidated rates, a surcharge for replacing and rehabilitating infrastructure, fair value treatment of
(cid:22)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
acquired utility systems, and other regulatory policies that promote infrastructure investment and efficiency in processing
rate cases.
Rate Case Management Capability – The mission of the regulated utility industry is to provide quality and reliable utility
service at reasonable rates to customers, while earning a fair return for shareholders. We strive to achieve the industry’s
mission by effective planning, efficient investments, and productive use of our resources. We maintain a rate case
management capability to pursue timely and adequate returns on the capital investments that we make in improving our
distribution system, treatment plants, information technology systems, and other infrastructure. This capital investment
creates assets that are used and useful in providing utility service and is commonly referred to as rate base. Timely and
adequate rate relief is important to our continued profitability and in providing a fair return to our shareholders; thus,
providing access to capital markets to help fund these investments. In pursuing our rate case strategy, we consider the
amount of net utility plant additions and replacements made since the previous rate decision, the changes in the cost of
capital, changes in our capital structure, and changes in operating and other costs. Based on these assessments, our utility
operations periodically file rate increase requests with their respective state utility commissions or local regulatory
authorities. In general, as a regulated enterprise, our utility rates are established to provide full recovery of utility
operating costs, taxes, interest on debt used to finance capital investments, and a return on equity used to finance capital
investments. Our ability to recover our expenses in a timely manner and earn a return on equity employed in the business
helps determine the profitability of the Company.
As of December 31, 2023, the Company’s rate base is estimated to be $10,400,000, which is comprised of:
(cid:120)(cid:3) $6,900,000 in the Regulated Water segment; and
(cid:120)(cid:3) $3,500,000 in the Regulated Natural Gas segment.
As of December 31, 2023, the regulatory status of the Company’s rate base is estimated to be as follows:
(cid:120)(cid:3) $8,200,000 filed with respective state utility commissions or local regulatory authorities; and
(cid:120)(cid:3) $2,200,000 not yet filed with respective state utility commissions or local regulatory authorities.
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. When feasible and
beneficial to our utility customers, we have sought approval from the applicable state utility commission to consolidate
rate divisions to achieve a more even distribution of costs over a larger customer base. All of the eight states in which we
operate water and wastewater utilities currently permit us to file a revenue requirement using some form of consolidated
rates for some or all of the rate divisions in that state.
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 $10,109 in 2023, $51,163 in 2022, and $2,995 in 2021.
Revenue Surcharges – Each of our states in which we operate water, wastewater, and 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. Prior to allowing for
such surcharges, utilities absorbed all of the depreciation and capital costs of these projects between base rate increases
without the benefit of additional revenues. The gap between the time that a capital project is completed and the recovery
of its costs in rates is known as regulatory lag. This surcharge is intended to substantially reduce regulatory lag, which
could act as a disincentive for utilities to rehabilitate their infrastructure. In addition, some states permit our subsidiaries
to use a surcharge or credit on their bills to reflect allowable changes in costs, such as changes in state tax rates, other
(cid:23)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
taxes and purchased water costs, until such time as the new costs are fully incorporated in base rates.(cid:3)Additional
information regarding revenue surcharges is provided in Note 17 – Rate Activity in this Annual Report.
Inflation and Operating Costs – Most elements of operating costs are subject to the effects of inflation and changes in the
number of customers served. Several elements are subject to the effects of changes in water or gas consumption, weather
conditions, and the degree of water treatment required due to variations in the quality of the raw water. The principal
elements of operating costs are purchased gas, labor and employee benefits, electricity, chemicals, transportation,
maintenance expenses, insurance and claims costs, and costs to comply with environmental regulations. Electricity and
chemical expenses vary in relationship to water or gas consumption, raw water quality, wastewater volumes, and price
changes. Maintenance expenses are sensitive to extremely cold weather, which can cause utility mains to rupture and
natural gas service lines to freeze, resulting in additional costs to repair the affected mains. Higher operating costs and
capital requirements may also require us to increase borrowings under our credit facilities, resulting in higher interest
expense.
Inflation, higher interest rates, higher insurance costs due to market conditions, and supply chain pressures resulted in an
increase in our operating and capital spending requirements in 2022 and 2023, which we expect to continue through 2024.
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. On occasion, our regulated utility companies may enter into rate settlement agreements,
which require us to wait for a period of time to file the next base rate increase request. These agreements may result in
regulatory lag whereby inflationary increases in expenses may not be reflected in rates, and may not yet be requested, or a
gap may exist between when a capital project is completed and the start of its recovery in rates. Even during periods of
moderate inflation, the effects of inflation can have a negative impact on our operating results. We continue to pursue
enhancements to our regulatory practices to facilitate the efficient recovery of the increased cost of providing services and
infrastructure improvements in our rates and mitigate the inherent regulatory lag associated with traditional rate making
processes.
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. However, higher gas costs may adversely impact our accounts
receivable collections, resulting in higher bad debt expense. This risk is currently mitigated by rate design that allows us
to collect from our customers a portion of our bad debt expense. A typical residential natural gas bill includes charges for
the cost of gas, delivery, and other charges. As of January 1, 2024, the annual portion of a typical Peoples Natural Gas
residential bill related to gas costs is approximately 41%. In periods when we experience market increases in natural gas
costs, such as in 2022, customer affordability and usage may be reduced. Customer conservation measures may occur that
can reduce natural gas revenues, either temporarily or over time.
Income Tax Accounting Method Change - In March 2020 and in June 2022, the Company changed the method of tax
accounting for certain qualifying infrastructure investments at its Peoples Natural Gas and Peoples Gas Company
subsidiaries, respectively. 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. 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. 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. These benefits are being provided back to customers over a five-year period through a credit on customer bills
which commenced in August 2021. In addition, the settlement petition required the contribution of $500 to a customer-
bill payment assistance program, completed in July 2021, and $5,000 in relief to past-due accounts for natural gas
customers impacted by the COVID-19 pandemic, completed in December 2021. For Peoples Gas, the Company
(cid:24)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
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.
In April 2023, the Internal Revenue Service issued Revenue Procedure 2023-15 which provides a safe harbor method of
accounting that taxpayers can adopt to determine whether expenses to repair, maintain, replace, or improve natural gas
transmission and distribution property must be capitalized for tax purposes. The Company evaluated the safe harbor and
intends to adopt the methodology on its 2023 tax return. Upon completion of its 2023 tax return analyses, the Company
will update the regulatory liabilities recorded with the recalculated amounts for the catch-up periods for its Peoples
Natural Gas and Peoples Gas subsidiaries, and file a petition to update its Tax Repair Surcredit rider to address the
benefits due to customers.
In the second quarter of 2023, based on the tax legislative guidance that was issued, the Company reevaluated the
uncertain tax positions related to the Regulated Water Segment and ultimately released a portion of its historical income
tax reserves. Concurrently, the Company deferred this tax benefit from the reserve release as a regulatory liability, as the
accounting treatment is expected to be determined in a subsequent regulatory proceeding.
Growth-Through-Acquisition Strategy
Part of our strategy to meet the industry challenges is to actively explore opportunities to expand our utility operations
through acquisitions of water, wastewater, and other utilities either in areas adjacent to our existing service areas or in new
service areas, and to explore acquiring market-based businesses that are complementary to our regulated utility operations.
To complement our growth strategy, we routinely evaluate the operating performance of our individual utility systems,
and in instances where limited economic growth opportunities exist or where we are unable to achieve favorable operating
results or a return on equity that we consider acceptable, we will seek to sell the utility system and reinvest the proceeds in
other utility systems. Consistent with this strategy, we are focusing our acquisitions and resources in states where we
have critical mass of operations in an effort to achieve economies of scale and increased efficiency. Our growth-through-
acquisition strategy allows us to operate more efficiently by sharing operating expenses over more utility customers and
provides new locations for future earnings growth through capital investment. Another element of our growth strategy is
the consideration of opportunities to expand by acquiring other utilities, including those that may be in a new state if they
provide promising economic growth opportunities and a return on equity that we consider acceptable. Our ability to
successfully execute this strategy historically and to meet the industry challenges has largely been due to our core
competencies, financial position, and our qualified and trained workforce, which we strive to retain by treating employees
fairly and providing our employees with development and growth opportunities.
During 2023, we completed seven acquisitions of water and wastewater systems, which along with the organic growth in
our existing systems, represents 19,659 new customers. 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.
The Company currently has six signed purchase agreements for additional water and wastewater systems that are expected
to serve approximately 215,000 equivalent retail customers or equivalent dwelling units and total approximately $380,000
in purchase price in two of our existing states. This includes the Company’s agreement to acquire the Delaware County
Regional Water Quality Control Authority (DELCORA) for $276,500. DELCORA, a Pennsylvania sewer authority,
serves approximately 198,000 equivalent dwelling units in the Philadelphia suburbs. Refer to Note 2 – Acquisitions in
this Annual Report for further discussion.
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.
(cid:25)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
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;
(cid:120)(cid:3)
(cid:120)(cid:3) water and wastewater operating revenues;
(cid:120)(cid:3) gas operating revenues, net of purchased gas costs;
(cid:120)(cid:3) operations and maintenance expenses;
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3) net income; and
(cid:120)(cid:3)
earnings before interest, taxes, and depreciation (EBITD);
earnings before income taxes;
the dividend rate on common stock.
In addition, we consider other key measures in evaluating our utility business performance within our Regulated Water
and Regulated Natural Gas segments:
(cid:120)(cid:3) our number of utility customers;
(cid:120)(cid:3)
the ratio of operations and maintenance expense compared to operating revenues (this percentage is termed
“operating expense ratio”);
return on revenues (net income divided by operating revenues);
rate base growth;
return on equity (net income divided by stockholders’ equity); and
the ratio of capital expenditures to depreciation expense.
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
Some of these measures, like EBITD and gas operating revenues, net of purchased gas costs, are non-GAAP financial
measures. The Company believes that the non-GAAP financial measures provide management the ability to measure the
Company’s financial operating performance across periods and are more comparable to measures reported by other
companies. 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 review these measurements regularly and compare them to historical periods, to our operating budget as approved by
our Board of Directors, and to other publicly-traded utilities. Additionally, our Regulated Natural Gas segment is affected
by the cost of natural gas, which is passed through to customers using a purchased gas adjustment mechanism and
includes commodity price, transportation and storage costs. These costs are reflected in the consolidated statement of
operations and comprehensive income as purchased gas expenses. Therefore, fluctuations in the cost of purchased gas
impact operating revenues on dollar-for-dollar basis. Management uses gas operating revenues, net of purchased gas
costs, a non-GAAP financial measure, to analyze the financial performance of our Regulated Natural Gas segment.
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.(cid:3)(cid:3)
Our operating expense ratio is one measure that we use to evaluate our operating efficiency and management effectiveness
of our regulated operations. Our operating expense ratio is affected by a number of factors, including the following:
(cid:120)(cid:3) Regulatory lag – Our rate filings are designed to provide for the recovery of increases in costs of operations
(primarily labor and employee benefits, electricity, chemicals, transportation, maintenance expenses, insurance and
claim costs, and costs to comply with environmental regulations), capital, and taxes. The revenue portion of the
operating expense ratio can be impacted by the timeliness of recovery of, and the return on capital investments.
(cid:26)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
The operating expense ratio is further influenced by regulatory lag (increases in operations and maintenance
expenses not yet recovered in rates or a gap between the time that a capital project is completed and the start of its
cost recovery in rates). The operating expense ratio is also influenced by decreases in operating revenues without a
commensurate decrease in operations and maintenance expense, such as changes in customer usage as impacted by
adverse weather conditions, or conservation trends. During periods of inflation, our operations and maintenance
expenses may increase, impacting the operating expense ratio, as a result of regulatory lag, since our rate cases may
not be filed timely and are not retroactive.
(cid:120)(cid:3) Acquisitions – In general, acquisitions of smaller undercapitalized utility systems in some areas may initially
increase our operating expense ratio if the operating revenues generated by these operations do not reflect the true
cost of service and are accompanied by a higher ratio of operations and maintenance expenses as compared to other
operational areas of the company that are more densely populated and have integrated operations. In these cases,
the acquired operations are characterized as having relatively higher operating costs to fixed capital costs, in
contrast to the majority of our operations, which generally consist of larger, interconnected systems, with higher
fixed capital costs (utility plant investment) and lower operating costs per customer. 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. The cost-structure of these market-
based companies differs from our utility companies in that, although they may generate free cash flow, these
companies may at times have a higher ratio of operations and maintenance expenses to operating revenues and a
lower capital investment and, consequently, a lower ratio of fixed capital costs versus operating revenues in
contrast to our regulated operations. As a result, the operating expense ratio is not comparable between the
businesses. These market-based subsidiary companies are not a component of our Regulated Water or Regulated
Natural Gas segments.
We continue to evaluate initiatives to help control operating costs and improve efficiencies.
Other Operational Measures Considered by Management
Sendout(cid:3)(cid:16)(cid:3)(cid:3)Sendout represents the quantity of treated water delivered to our distribution systems. We use sendout as an
indicator of customer demand. Weather conditions tend to impact water consumption, particularly during the late spring,
summer, and early fall when discretionary and recreational use of water is at its highest. 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. Conservation efforts, construction codes that require the use of
low-flow plumbing fixtures, as well as mandated water use restrictions in response to drought conditions can reduce water
consumption. We believe an increase in conservation awareness by our customers, including the increased use of more
efficient plumbing fixtures and appliances, may continue to result in a long-term structural trend of declining water usage
per customer. These gradual long-term changes are normally taken into account by the utility commissions in setting
rates, whereas significant short-term changes in water usage, resulting from drought warnings, water use restrictions, or
extreme weather conditions, may not be fully reflected in the rates we charge between rate proceedings. In Illinois, our
operating subsidiary has a revenue stability mechanism which allows us to recognize state PUC-authorized revenue for a
period which is not based upon the volume of water sold during that period, and effectively lessens the impact of weather
and consumption variability.
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. 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
(cid:27)
(cid:3)
(cid:40)(cid:54)(cid:54)(cid:40)(cid:49)(cid:55)(cid:44)(cid:36)(cid:47)(cid:3)(cid:56)(cid:55)(cid:44)(cid:47)(cid:44)(cid:55)(cid:44)(cid:40)(cid:54)(cid:15)(cid:3)(cid:44)(cid:49)(cid:38)(cid:17)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:54)(cid:56)(cid:37)(cid:54)(cid:44)(cid:39)(cid:44)(cid:36)(cid:53)(cid:44)(cid:40)(cid:54)(cid:3)
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(cid:3)(cid:23)(cid:28)(cid:27)(cid:15)(cid:21)(cid:21)(cid:25)(cid:3) (cid:7) (cid:3)(cid:23)(cid:25)(cid:24)(cid:15)(cid:21)(cid:22)(cid:26)(cid:3) (cid:7) (cid:3)(cid:23)(cid:22)(cid:20)(cid:15)(cid:25)(cid:20)(cid:21)(cid:3) (cid:7)(cid:3)
(cid:7)(cid:3) (cid:3)(cid:20)(cid:15)(cid:20)(cid:28)(cid:28)(cid:15)(cid:20)(cid:19)(cid:22)(cid:3) (cid:7)(cid:3)(cid:20)(cid:15)(cid:19)(cid:25)(cid:21)(cid:15)(cid:26)(cid:25)(cid:22)(cid:3) (cid:7)(cid:3)(cid:20)(cid:15)(cid:19)(cid:21)(cid:19)(cid:15)(cid:24)(cid:20)(cid:28)(cid:3) (cid:7)(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:27)(cid:24)(cid:28)(cid:15)(cid:28)(cid:19)(cid:21)(cid:3)
(cid:3)(cid:22)(cid:27)(cid:15)(cid:19)(cid:22)(cid:28)(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)(cid:26)(cid:19)(cid:15)(cid:23)(cid:19)(cid:23)(cid:3)
(cid:3)(cid:11)(cid:21)(cid:26)(cid:28)(cid:15)(cid:25)(cid:19)(cid:22)(cid:12)(cid:3)
(cid:3)(cid:11)(cid:21)(cid:24)(cid:15)(cid:19)(cid:19)(cid:28)(cid:12)(cid:3)
(cid:3)(cid:11)(cid:21)(cid:22)(cid:23)(cid:15)(cid:21)(cid:19)(cid:27)(cid:12)(cid:3)
(cid:3)(cid:11)(cid:22)(cid:27)(cid:15)(cid:20)(cid:22)(cid:20)(cid:12)(cid:3)
(cid:3)(cid:22)(cid:21)(cid:15)(cid:28)(cid:27)(cid:28)(cid:3)
(cid:3)(cid:20)(cid:22)(cid:25)(cid:15)(cid:22)(cid:23)(cid:19)(cid:3)
(cid:54)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:29)(cid:3)
(cid:3)
(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
(cid:39)(cid:72)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
(cid:55)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)(cid:3)
(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:15)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)
(cid:49)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)
(cid:53)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:40)(cid:86)(cid:86)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:56)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:10)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)
(cid:53)(cid:68)(cid:87)(cid:76)(cid:82)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)
(cid:40)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:21)(cid:27)(cid:17)(cid:19)(cid:8)(cid:3)
(cid:20)(cid:25)(cid:17)(cid:26)(cid:8)(cid:3)
(cid:23)(cid:17)(cid:23)(cid:8)(cid:3)
(cid:20)(cid:22)(cid:17)(cid:25)(cid:8)(cid:3)
(cid:21)(cid:23)(cid:17)(cid:22)(cid:8)(cid:3)
(cid:27)(cid:17)(cid:23)(cid:8)(cid:3)
(cid:22)(cid:17)(cid:24)(cid:3)
(cid:11)(cid:20)(cid:24)(cid:17)(cid:23)(cid:8)(cid:12)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:21)(cid:25)(cid:17)(cid:27)(cid:8)(cid:3)
(cid:20)(cid:23)(cid:17)(cid:19)(cid:8)(cid:3)
(cid:22)(cid:17)(cid:28)(cid:8)(cid:3)
(cid:20)(cid:19)(cid:17)(cid:21)(cid:8)(cid:3)
(cid:21)(cid:19)(cid:17)(cid:22)(cid:8)(cid:3)
(cid:27)(cid:17)(cid:26)(cid:8)(cid:3)
(cid:22)(cid:17)(cid:23)(cid:3)
(cid:11)(cid:22)(cid:17)(cid:21)(cid:8)(cid:12)(cid:3)
(cid:21)(cid:28)(cid:17)(cid:22)(cid:8)(cid:3)
(cid:20)(cid:24)(cid:17)(cid:28)(cid:8)(cid:3)
(cid:23)(cid:17)(cid:25)(cid:8)(cid:3)
(cid:20)(cid:19)(cid:17)(cid:28)(cid:8)(cid:3)
(cid:21)(cid:22)(cid:17)(cid:19)(cid:8)(cid:3)
(cid:27)(cid:17)(cid:22)(cid:8)(cid:3)
(cid:22)(cid:17)(cid:24)(cid:3)
(cid:11)(cid:21)(cid:17)(cid:22)(cid:8)(cid:12)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:20)(cid:17)(cid:21)(cid:8)(cid:3)
(cid:21)(cid:17)(cid:26)(cid:8)(cid:3)
(cid:19)(cid:17)(cid:24)(cid:8)(cid:3)
(cid:22)(cid:17)(cid:23)(cid:8)(cid:3)
(cid:23)(cid:17)(cid:19)(cid:8)(cid:3)
(cid:16)(cid:19)(cid:17)(cid:22)(cid:8)(cid:3)
(cid:19)(cid:17)(cid:20)(cid:3)
(cid:11)(cid:20)(cid:21)(cid:17)(cid:21)(cid:8)(cid:12)(cid:3)
(cid:3)
(cid:28)(cid:3)
(cid:21)(cid:19)(cid:21)(cid:21)(cid:3)(cid:89)(cid:86)(cid:17)(cid:3)
(cid:21)(cid:19)(cid:21)(cid:20)(cid:3)
(cid:3)
(cid:3)(cid:20)(cid:19)(cid:21)(cid:15)(cid:26)(cid:25)(cid:28)(cid:3)
(cid:3)(cid:21)(cid:27)(cid:22)(cid:15)(cid:23)(cid:25)(cid:19)(cid:3)
(cid:3)(cid:21)(cid:22)(cid:15)(cid:25)(cid:24)(cid:28)(cid:3)
(cid:3)(cid:23)(cid:19)(cid:28)(cid:15)(cid:27)(cid:27)(cid:27)(cid:3)
(cid:3)(cid:25)(cid:22)(cid:15)(cid:19)(cid:25)(cid:28)(cid:3)
(cid:3)(cid:22)(cid:22)(cid:15)(cid:25)(cid:21)(cid:24)(cid:3)
(cid:3)(cid:23)(cid:21)(cid:15)(cid:21)(cid:23)(cid:23)(cid:3)
(cid:16)(cid:21)(cid:17)(cid:24)(cid:8)(cid:3)
(cid:16)(cid:20)(cid:17)(cid:28)(cid:8)(cid:3)
(cid:16)(cid:19)(cid:17)(cid:26)(cid:8)(cid:3)
(cid:16)(cid:19)(cid:17)(cid:26)(cid:8)(cid:3)
(cid:16)(cid:21)(cid:17)(cid:26)(cid:8)(cid:3)
(cid:19)(cid:17)(cid:23)(cid:8)(cid:3)
(cid:11)(cid:19)(cid:17)(cid:20)(cid:12)(cid:3)
(cid:11)(cid:19)(cid:17)(cid:28)(cid:8)(cid:12)(cid:3)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
Consolidated Results of Operations Comparison for 2023 and 2022
Operating revenues - Operating revenues decreased by $234,208 or 10.2% for the year ended December 31, 2023
compared to the year ended December 31, 2022. 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.
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 decrease in Other business
segment revenues is primarily due to lower revenues from our non-regulated natural gas operations as a result of lower
average gas prices and lower gas usage in the current period as compared to the prior period.
Operating expenses - Operations and maintenance expenses decreased in 2023, as compared to 2022, by $38,131 or
6.2%, primarily due to:
(cid:120)(cid:3) decrease in customer assistance surcharge costs of $18,710 in our Regulated Natural Gas segment, which has an
equivalent offsetting amount in revenues;
(cid:120)(cid:3) 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;
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3) decrease in charitable contributions to the Essential Foundation and other organizations of $15,360;
(cid:120)(cid:3) decrease in bad debt expense of $4,422;
(cid:120)(cid:3) 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.
(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
Purchased gas decreased by $249,689 or 41.5% in 2023 compared to 2022. Purchased gas represents the cost of gas sold
by Peoples for the regulated and non-regulated gas business and has a corresponding offset in revenue. This expense
decreased for the regulated natural gas business and non-regulated business by $223,461 and $26,228, respectively. The
decrease in 2023 is the result of the impact of lower cost of gas of $128,997 and, lower gas usage of $120,692 due to
warmer weather conditions as compared with 2022.
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. Expenses associated with filing rate cases are deferred and amortized over
periods that generally range from one to three years.
(cid:20)(cid:19)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
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.
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 rates. 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 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.
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. 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.
Gain on sale of other assets totaled $65 in 2023 and $991 in 2022, and consists of the sales of property, plant and
equipment.
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. 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. Additionally, the non-service cost component of the
net benefit cost for post-retirement benefits in our Regulated Gas segment was lower in 2023.
Income tax benefit - Our effective income tax rate was a benefit of 15.4% in 2023 and 3.2% in 2022. 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.
Net income -
Operating income
Net income
Diluted net income per share
Years ended December 31,
2022
2021
2023
$
692,097 $
498,226
1.86
661,187 $
465,237
1.77
602,709
431,612
1.67
The changes in diluted net income per share in 2023 over the previous year were due to the aforementioned changes.
Although we have experienced increased income in the recent past, continued adequate rate increases reflecting increased
operating costs and new capital improvements are important to the future realization of improved profitability.
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:
(cid:120)(cid:3) Eight segments are composed of our water and wastewater regulated utility operations in the eight states where we
provide these services. These operating segments are aggregated into one reportable segment, Regulated Water,
since each of these operating segments has the following similarities: economic characteristics, nature of services,
(cid:20)(cid:20)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
production processes, customers, water distribution and/or wastewater collection methods, and the nature of the
regulatory environment.
(cid:120)(cid:3) Our Regulated Natural Gas segment is composed of natural gas utility companies in three states acquired in the
Peoples Gas Acquisition. These utilities provide natural gas distribution services, and their operating results
subsequent to the March 16, 2020 acquisition date are reported in the Regulated Natural Gas segment. In October
2023, the Company sold its regulated natural gas utility assets in West Virginia, which represented approximately
two percent of the Company’s regulated natural gas customers. The sale concluded the Company’s regulated utility
operations in West Virginia.(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)
(cid:120)(cid:3) Two segments are not quantitatively significant to be reportable and are composed of our non-regulated natural gas
operations and Aqua Resources. 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.
(cid:20)(cid:21)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(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:
Sendout (in millions of gallons)
Pennsylvania
Ohio
Illinois
Texas
North Carolina
Other states
Subtotal
Elimination
Total sendout by state
Utility customers:
Residential water
Commercial water
Industrial water
Other water
Wastewater
Total water and wastewater utility customers
Operating revenues:
Residential water
Commercial water
Industrial water
Other water
Wastewater
Other utility
Total operating revenues
Operating expenses:
Operations and maintenance expense
Depreciation and amortization
Taxes other than income taxes
Other expense, net
Provision for income taxes
Segment net income
2023
2022
2021
2023 vs.
2022
2022 vs.
2021
42,525
13,560
8,421
8,703
5,824
6,526
85,559
(122)
85,437
42,666
14,604
8,784
8,606
5,934
6,272
86,866
(141)
86,725
42,198
13,971
8,764
7,212
5,984
6,191
84,320
(154)
84,166
859,331
43,853
1,283
19,123
190,119
1,113,709
850,673
43,119
1,286
18,446
181,721
1,095,245
842,200
42,864
1,331
17,932
162,478
1,066,805
(141)
(1,044)
(363)
97
(110)
254
(1,307)
19
(1,288)
8,658
734
(3)
677
8,398
18,464
$
$
$
$
$
$
$
$
641,351 $
180,731
33,949
92,784
187,462
17,099
1,153,376 $
607,473 $
168,460
32,581
94,359
165,312
14,787
1,082,972 $
368,843 $
217,593 $
62,759 $
105,674 $
57,546 $
340,961 $
370,850 $
201,392 $
64,472 $
84,396 $
47,510 $
314,352 $
561,996
151,071
30,230
89,472
132,316
15,118
980,203
332,598
182,074
63,264
81,931
26,633
293,703
$
$
$
$
$
$
$
$
33,878 $
12,271
1,368
(1,575)
22,150
2,312
70,404 $
(2,007) $
16,201 $
(1,713) $
21,278 $
10,036 $
26,609 $
468
633
20
1,394
(50)
81
2,546
13
2,559
8,473
255
(45)
514
19,243
28,440
45,477
17,389
2,351
4,887
32,996
(331)
102,769
38,252
19,318
1,208
2,465
20,877
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. 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. 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.
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.
(cid:20)(cid:22)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(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 decrease of $2,007 or 0.5% was primarily due to the following:
(cid:120)(cid:3)
(cid:120)(cid:3)
increase in production costs for water and wastewater operations of $12,208;
additional operating costs resulting from acquired water and wastewater utility systems and higher customer base
of $5,767; offset by
(cid:120)(cid:3) decrease in employee related costs of $8,379 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;
(cid:120)(cid:3) decrease in bad debt expense of $902;
(cid:120)(cid:3)
insurance recovery of $2,448 associated with clean-up costs and other expenses incurred during Hurricane Ida;
and,
lower 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.
(cid:120)(cid:3)
Depreciation and amortization increased by $16,201 or 8.0% primarily due to continued capital investment to expand and
improve our utility facilities and our acquisitions of new utility systems.
Other expense, net – Interest expense, net, increased by $12,742 or 11.4% primarily due to the increase in average
borrowings and increased borrowing costs.
AFUDC decreased by $6,164 or 29.4% due to the decrease in the average balance of utility plant construction work in
progress, to which AFUDC is applied.
Other income, inclusive of loss/gain on sale of other assets, totaled $4,220 in 2023 and $6,592 in 2022. The decrease in
other income is largely due to the increase in the non-service cost component of post-retirement benefits in our Regulated
Water segment in 2023.
Provision for income tax – The effective income tax rate for our Regulated Water segment was an expense of 14.4% in
2023, compared to an expense of 13.1% in 2022. The change in the effective tax rate is primarily due to a decrease in the
amortization of certain regulatory liabilities associated with deferred taxes.
(cid:20)(cid:23)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(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:
Gas utility customers:
Residential gas
Commercial gas
Industrial gas
Total gas utility customers
Delivered volumes (thousand cubic feet)
Residential gas
Commercial gas
Industrial gas
Total delivered volumes
Heating Degree Days (a)
Average Heating Degree Days (b)
Operating revenues:
Residential gas
Commercial gas
Industrial gas
Gas transportation
Customer rate credits
Other utility
Total operating revenues
Operating expenses:
Operations and maintenance expense
Purchased gas
Depreciation and amortization
Taxes other than income taxes
Other expense, net
Income tax benefit
Segment net income
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
683,811
59,384
551
743,746
695,198
59,684
1,459
756,341
692,174
59,595
1,475
753,244
(11,387)
(300)
(908)
(12,595)
3,024
89
(16)
3,097
51,698,440
33,151,308
48,323,846
133,173,594
4,558
5,427
61,093,372
37,240,382
49,017,036
147,350,790
5,648
5,438
56,542,038
33,403,899
49,726,237
139,672,174
5,139
5,466
(9,394,932)
(4,089,074)
(693,190)
(14,177,196)
(1,090)
(11)
4,551,334
3,836,483
(709,201)
7,678,616
509
(28)
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
$
$
$
$
$
$
$
$
$
519,406 $
111,272
3,232
184,598
-
45,251
863,759 $
720,490 $
149,653
5,636
205,825
-
61,758
1,143,362 $
209,073 $
327,548 $
125,263 $
23,846 $
90,819 $
(113,353) $
200,563 $
239,506 $
551,009 $
118,955 $
22,642 $
87,916 $
(61,942) $
185,276 $
530,338 $
99,596
3,427
198,195
(5,000)
33,346
859,902 $
226,194 $
313,390 $
113,238 $
20,801 $
78,099 $
(40,013) $
148,193 $
(201,084) $
(38,381)
(2,404)
(21,227)
-
(16,507)
(279,603) $
(30,433) $
(223,461) $
6,308 $
1,204 $
2,903 $
(51,411) $
15,287 $
190,152
50,057
2,209
7,630
5,000
28,412
283,460
13,312
237,619
5,717
1,841
9,817
(21,929)
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.
(b) Based on historical twenty-year average heating degree days, as calculated from data provided by the National Weather Service for
the same geographic location.
Operating revenues – Operating revenues from the Regulated Natural Gas segment decreased by $279,603 or 24.5% due
to:
impact of lower gas cost of $223,461 in 2023 as compared to 2022;
lower gas usage of $53,122 due to warmer weather conditions in 2023;
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3) decrease in customer assistance surcharge of $18,710, which has an equivalent offsetting amount in operations
and maintenance expense; offset by
an increase of $11,141 due to higher rates and other surcharges.
(cid:120)(cid:3)
(cid:20)(cid:24)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
Operating expenses – Operations and maintenance expense for the year ended December 31, 2023 decreased by $30,433
or 12.7% primarily due to the following:
(cid:120)(cid:3) decrease in customer assistance surcharge costs of $18,710, which has an equivalent offsetting amount in
(cid:120)(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3)
revenues;
lower charitable contributions to the Essential Foundation and other organizations of $13,360;
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 to fair value;
lower operations 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;
(cid:120)(cid:3) decrease in bad debt of $3,520; offset by
an increase in legal fees of $1,892; and
(cid:120)(cid:3)
an increase in materials and supplies of $2,121.(cid:3)
(cid:120)(cid:3)
Our Regulated Natural Gas segment is affected by the cost of natural gas, which is passed through to customers using a
purchased gas adjustment clause and includes commodity price, transportation and storage costs. These costs are
reflected in the consolidated statement of operations and comprehensive income as purchased gas expenses. Therefore,
fluctuations in the cost of purchased gas impact operating revenues on dollar-for-dollar basis. Purchased gas decreased by
$223,461 or 40.6% in 2023 compared to 2022. The decrease is the result of the impact of lower cost of gas and lower gas
usage which amounted to $118,371 and $105,090, respectively, in 2023 as compared with the prior year.
Depreciation and amortization increased by $6,308 or 5.3% primarily due to continued capital investment in pipe
replacement.
Taxes other than income taxes increased by $1,204 or 5.3% mainly due to higher gross receipts tax and public utility
commission assessments in 2023 as compared with the prior year.
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.
Other expense, inclusive of loss/gain on sale of other assets, totaled $680 in 2023 and $3,445 in 2022. The decrease in
other expense is driven by a lower non-service cost component of our net benefit cost for post-retirement benefits in our
Regulated Gas segment in 2023.
Income tax benefit – The effective income tax rate was a benefit of 130.0% in 2023, compared to a benefit of 50.2% in
2022. The change in the effective tax rate is primarily attributed to an increase in the income tax benefit associated with
the tax deduction for qualifying infrastructure investments.
(cid:20)(cid:25)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Cash Flow and Capital Expenditures
Net operating cash flows, dividends paid on common stock, capital expenditures, including allowances for funds used
during construction, and expenditures for acquiring utility systems were as follows for the years ended December 31:
Net Operating Cash
Flows
2021
2022
2023
$
$
644,679 $
600,306
933,587
2,178,572 $
Dividends
Capital Expenditures
Acquisitions
258,650 $
288,632
316,806
864,088 $
1,020,519 $
1,062,763
1,199,103
3,282,385 $
36,326
116,891
45,303
198,520
Net cash flows from operating activities increased from 2022 to 2023 largely due to the decrease in accounts receivable,
unbilled revenues and inventory - gas stored. Average cost of gas stored in inventories and associated recoveries of gas
costs from customers was lower in 2023 than in 2022.
Included in capital expenditures for the three year period are: expenditures for the rehabilitation of existing utility
systems, the expansion of our utility systems, modernization and replacement of existing treatment facilities, meters,
office facilities, information technology, vehicles, and equipment. 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. 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. Dividends increased during
the past three years as a result of annual increases in the dividends declared and paid and increases in the number of shares
outstanding.
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. 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. 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.
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. 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. The estimates
discussed above do not include any amounts for possible future acquisitions of utility systems or the financing necessary
to support them.
(cid:20)(cid:26)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
Our primary sources of liquidity are cash flows from operations (including the allowed deferral of Federal income tax
payments), borrowings under various short-term lines of credit and other credit facilities, and customer advances and
contributions in aid of construction. Our cash flow from operations, or internally-generated funds, is impacted by the
timing of rate relief, utility operating revenues, and changes in Federal tax laws, and accelerated tax depreciation or
deductions for utility construction projects. We fund our capital and typical acquisitions through internally-generated
funds, supplemented by short-term lines of credit. Over time, we partially repay or pay-down our short-term lines of
credit with long-term debt. The ability to finance our future construction programs, as well as our acquisition activities,
depends on our ability to attract the necessary external debt and equity financing and maintain internally-generated funds.
Timely rate orders permitting compensatory rates of return on invested capital will be required by our operating
subsidiaries to achieve an adequate level of earnings and cash flow to enable them to secure the capital they will need to
operate and to maintain satisfactory debt coverage ratios.
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. 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. These acquisitions are expected
to add approximately 215,000 equivalent retail customers in two of the states in which the Company operates.(cid:3)
In July 2023, the Company completed the following water utility asset acquisitions: Shenandoah Borough, Pennsylvania,
which serves approximately 2,900 customers for $12,291; La Rue, an Ohio municipality, which serves approximately 300
customers for $2,253; and, Southern Oaks Water System, which serves approximately 800 customers in Texas for $3,321.
In July 2023, the Company completed their acquisition of a portion of the water and wastewater utility assets of the
Village of Frankfort, an Illinois municipality, which serves approximately 1,500 customers for $1,424. In June 2023, the
Company acquired the wastewater utility assets of Union Rome, Ohio, which serves approximately 4,300 customers for a
cash purchase price of $25,547. Additionally, in March 2023, the Company acquired the North Heidelberg Sewer
Company in Berks County, Pennsylvania, which serves approximately 300 customer connections for a cash purchase
price of $136.
In November 2022, the Company acquired the water system of Oak Brook, DuPage County, Illinois, which serves 2,037
customers, for a cash purchase price of $12,500. In August 2022, the Company acquired the municipal wastewater assets
of East Whiteland Township, Chester County, Pennsylvania, which serves 4,018 customers, for a cash purchase price of
$54,374. In March 2022, the Company acquired the wastewater system of Lower Makefield Township, which serves
11,323 customer connections in Lower Makefield, Falls, and Middletown townships, and Yardley Borough, Bucks
County, Pennsylvania, for a cash purchase price of $53,000.
Subsequent to the August 2022 closing on the acquisition of the municipal wastewater assets of East Whiteland
Township, a party filed an appeal to the Pennsylvania Public Utility Commission’s order of approval. On July 31, 2023, a
decision was issued by the Pennsylvania Commonwealth Court that agreed with the party’s appeal and reversed the order
which approved the acquisition. In an effort to resolve the matter, the Company pursued and is continuing to pursue
certain legal actions. Management believes the final resolution of this matter is not expected to have a material adverse
effect on the Company’s financial position, results of operations or cash flows. Refer to Note 2 – Acquisitions in this
Annual Report for additional information.
In August 2021, the Company acquired the water utility system assets of The Commons Water Supply, Inc., which serves
992 customers in Harris County, Texas, and the wastewater utility system assets of the Village of Bourbonnais, which
serves approximately 6,500 customers in Kankakee County, Illinois. The total cash purchase prices for these utility
systems were $4,000 and $32,100, respectively.
(cid:20)(cid:27)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
During the past three years, we have expended cash of $198,520 related to the acquisition of both water and wastewater
utility systems. We continue to pursue the acquisition of water and wastewater utility systems and explore other utility
acquisitions that may be in a new state. Our typical acquisitions are expected to be financed with short-term debt with
subsequent repayment from the proceeds of long-term debt, retained earnings, or equity issuances.
Assets Held for Sale and Dispositions
We routinely review and evaluate areas of our business and operating divisions and, over time, may sell utility systems or
portions of systems. In December 2022, the Company signed an agreement to sell its regulated natural gas utility assets in
West Virginia, which represented approximately two percent of the Company’s regulated natural gas customers. The sale
closed on October 1, 2023 for an estimated purchase price of $39,965, subject to working capital and other adjustments.
The sale concluded the Company’s regulated utility operations in West Virginia. In October 2023, the Company entered
into an agreement to sell its interest in three non-utility local microgrid and distributed energy projects for $165,000. The
sale was completed in January 2024. These transactions are consistent with the Company’s long-term strategy of
focusing on its core business and will allow the Company to prioritize the growth of its utilities in states where it has
scale. The Company intends to use the proceeds from these transactions to finance its capital expenditures and water and
wastewater acquisitions, in place of external funding from equity and debt issuances. Refer to Note 3 – Asset Held for
Sale and Dispositions in this Annual Report for additional information.
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, 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. 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. Included in the short-term lines of credit is an Aqua Pennsylvania $100,000 364-day unsecured
revolving credit facility and a Peoples Natural Gas $300,000 364-day unsecured revolving credit facility. These short-term
lines of credit are subject to renewal on an annual basis. Although we believe we will be able to renew these facilities,
there is no assurance that they will be renewed, or what the terms of any such renewal will be.
On January 8, 2024, the Company issued $500,000 of long-term debt (the “2024 Senior Notes”), less expenses of $4,610,
due in 2034 with an interest rate of 5.375%. The Company used the net proceeds from the issuance of 2024 Senior Notes
(1) to repay a portion of the borrowings under the Company’s existing five year unsecured revolving credit facility, and
(2) for general corporate purposes.
In August 2023, the Company’s subsidiary, Aqua Pennsylvania, issued $225,000 in aggregate principal amount of first
mortgage bonds. The bonds consisted of $175,000 of 5.48% first mortgage bonds due in 2053; and $50,000 of 5.56% first
mortgage bonds due in 2061. In January 2023 and October 2022, Aqua Pennsylvania issued $75,000 and $125,000 of first
mortgage bonds, due in 2043 and 2052, and with interest rates of 5.60% and 4.50%, respectively. The proceeds from these
bonds were used to repay existing indebtedness and for general corporate purposes.
On October 14, 2022, the Company entered into at-the market sales agreements (“ATM”) with third-party sales agents,
under which the Company may offer and sell shares of its common stock, from time to time, at its option, having an
aggregate gross offering price of up to $500,000 pursuant to the Company’s effective shelf registration statement on Form
S-3 (File No. 333-255235). The Company intends to use the net proceeds from the sales of shares through the ATM for
working capital, capital expenditures, water and wastewater utility acquisitions and repaying outstanding indebtedness. As
of December 31, 2022, the Company has issued 1,321,994 shares for net proceeds of $63,040 under the ATM. During
(cid:20)(cid:28)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
the year ended December 31, 2023, the Company sold 8,938,839 shares of common stock, in exchange for net proceeds of
$322,983 under the ATM. As of December 31, 2023, approximately $110,000 remained available for sale under the ATM.
On June 29, 2023, Aqua Pennsylvania and Peoples Natural Gas Companies amended the terms of their respective
$100,000 and $300,000, 364-day revolving credit agreements, as follows: (1) extended the maturity dates to June 27,
2024; and (2) updated the adjustment on the Bloomberg Short-Term Bank Yield Index (BSBY) Rate.
On May 20, 2022, the Company issued $500,000 of long-term debt (the “Senior Notes”), less expenses of $5,815, due in
2052 with an interest rate of 5.30%. The Company used the net proceeds from the issuance of Senior Notes to (1) to repay
$49,700 of borrowings under Aqua Pennsylvania’s 364-day revolving credit facility and $410,000 of borrowings under the
Company’s existing five year unsecured revolving credit facility, and (2) for general corporate purposes.
On April 15, 2021, our operating subsidiary, Aqua Ohio, Inc., issued $100,000 of first mortgage bonds, of which $50,000
is due in 2031 and $50,000 is due in 2051, with interest rates of 2.37% and 3.35%, respectively. The proceeds from these
bonds were used for general corporate purposes and to repay existing indebtedness. Further, on April 19, 2021, the
Company issued $400,000 of long-term debt, with expenses of $4,010, which is due in 2031 with an interest rate of
2.40%. The Company used the proceeds from this issuance to repay $50,000 of borrowings under the Aqua Pennsylvania
revolving credit facility, and the balance was used to repay in full the borrowings under its existing five-year unsecured
revolving credit agreement.
In August 2020, we entered into a forward equity sale agreement for 6,700,000 shares of common stock with a third party
(the “forward purchaser”). In connection with the forward equity sale agreement, the forward purchaser borrowed an
equal number of shares of our common stock from stock lenders and sold the borrowed shares to the public. We did not
receive any proceeds from the sale of our common stock by the forward purchaser until settlement of the forward equity
sale agreement. On August 9, 2021, the Company settled the forward equity sale agreement in full by physical share
settlement. The Company issued 6,700,000 shares and received cash proceeds of $299,739 at a forward price of $44.74
per share. Pursuant to the agreement, the forward price was computed based upon the initial forward price of $46.00 per
share, adjusted for a floating interest rate factor equal to a specified daily rate less a spread and scheduled dividends
during the term of the agreement. The Company used the proceeds received upon settlement of the forward equity sale
agreement to fund general corporate purposes, including for water and wastewater acquisitions, working capital and
capital expenditures. The forward equity sale agreement has now been completely settled, and there are no additional
shares subject to the forward equity sale agreement.
Our consolidated balance sheet historically has had a negative working capital position, whereby routinely our current
liabilities exceed our current assets. Management believes that internally-generated funds along with existing credit
facilities and the proceeds from the issuance of long-term debt and common equity will be adequate to provide sufficient
working capital to maintain normal operations and to meet our financing requirements for at least the next twelve months.
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. 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.
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. During the past three years, we issued common stock, including common stock in connection with a forward
equity sale agreement, and long-term debt in offerings under this shelf registration statement. Refer to Note 11 – Long-
(cid:21)(cid:19)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
term Debt and Loans Payable and Note 13 – Stockholders’ Equity in this Annual Report for further information regarding
these financings.
In addition, we have an acquisition shelf registration statement, which was filed with the SEC on February 27, 2015, to
permit the offering from time to time of an aggregate of $500,000 of our common stock and shares of preferred stock in
connection with acquisitions. The balance remaining available for use under the acquisition shelf registration as of
December 31, 2023 is $487,155.
We will determine the form and terms of any further securities issued under the universal shelf registration statement and
the acquisition shelf registration statement at the time of issuance.
We offer a Dividend Reinvestment and Direct Stock Purchase Plan (the Plan) that provides a convenient and economical
way to purchase shares of the Company. Under the direct stock purchase portion of the Plan, shares are issued throughout
the year. The dividend reinvestment portion of the Plan offers a five percent discount on the purchase of shares of
common stock with reinvested dividends. 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. 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. In 2023, 2022 and 2021, we sold 430,487, 368,278, and 374,824 original issues
shares of common stock for net proceeds of $16,005, $16,619, and $16,799, respectively, through the dividend
reinvestment portion of the plan.
Credit Risk
As of December 31, 2023, our credit ratings remained at investment grade levels. On July 12, 2023, S&P affirmed an A
issuer credit rating for the Company, Aqua Pennsylvania and Peoples Natural Gas Companies, and revised its outlook
from stable to negative for the companies, citing weakening financial measures as a result of inflationary pressures and
our significant capital spending. However, as can be noted in their report, S&P continues to assess our business risk
profile as excellent, considering our low-risk and rate-regulated water and gas distribution operations in credit-supportive
regulatory environments, our geographic and regulatory diversity, our large and stable residential and commercial
customer base, and our solid and reliable operations. On August 29, 2023, Moody’s Investors Service (“Moody’s”)
affirmed the Company’s senior unsecured notes rating of Baa2 and stable outlook; and, affirmed Peoples Natural Gas
Companies’ senior secured notes rating of Baa1 and revised its outlook from stable to negative. The Company’s ability to
maintain its credit rating depends, among other things, on adequate and timely rate relief, its ability to fund capital
expenditures in a balanced manner using both debt and equity, and its ability to generate cash flow. A material
downgrade of our credit rating may result in the imposition of additional financial and/or other covenants, impact the
market prices of equity and debt securities, increase our borrowing costs, and adversely affect our liquidity, among other
things. Management continues to enhance our regulatory practices to address regulatory lag and recover capital project
costs and increases in operating costs efficiently and timely through various rate-making mechanisms.
Off-Balance Sheet Financing Arrangements
We do not engage in any off-balance sheet financing arrangements. We do not have any interest in entities referred to as
variable interest entities, which includes special purpose entities and other structured finance entities.
(cid:21)(cid:20)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
Contractual Obligations
The following table summarizes our contractual cash obligations as of December 31, 2023:
Payments Due by Period
Long-term debt
Interest on fixed-rate, long-term debt (1)
Operating leases (2)
Unconditional purchase obligations (3)
Gas purchase obligations (4)
Other purchase obligations (5)
Pension plan obligations (6)
Other obligations (7)
Total
$
Total
6,938,008 $
286,799
53,038
18,067
2,519,459
87,187
9,393
8,428
Less than 1
year
67,415 $
2,660
9,037
5,990
206,378
87,187
9,393
1,531
1 - 3 years
3 - 5 years
More than 5
years
168,875 $ 964,760 $ 5,736,958
219,417
56,123
13,902
13,933
1,081
3,035
1,355,659
485,586
-
-
-
-
1,739
2,659
675,936 $1,526,096 $ 7,328,756
8,599
16,166
7,961
471,836
-
-
2,499
$
9,920,379 $ 389,591 $
(1)(cid:3) Represents interest payable on fixed rate, long-term debt. Amounts reported may differ from actual due to future
refinancing of debt.
(2)(cid:3) Represents minimum lease payments for long-term operating leases of land, office facilities, office equipment, and
vehicles.
(3)(cid:3) Represents our commitment to purchase minimum quantities of water as stipulated in agreements with other water
purveyors. We use purchased water to supplement our water supply, particularly during periods of peak customer
demand. Our actual purchases may exceed the minimum required levels.
(4)(cid:3) Represents our commitment to purchase minimum quantities of natural gas stipulated in agreements with various
producers of natural gas to meet regulated customers’ natural gas requirements.
(5)(cid:3) Represents an approximation of the open purchase orders for goods and services purchased in the ordinary course of
business.
(6)(cid:3) Represents contributions to be made to the Company’s retirement plans.
(7)(cid:3) Represents expenditures estimated to be required under legal and binding contractual obligations.
In addition to the contractual obligations table above, we have the following obligations:
(cid:120)(cid:3) Refunds of customer’s advances for construction – We pay refunds on customers’ advances for construction over
a specific period of time based on operating revenues related to developer-installed utility mains or as new
customers are connected to and take service from such mains. After all refunds are paid, any remaining balance is
transferred to contributions in aid of construction. The refund amounts are not included in the above table
because the refund amounts and timing are dependent upon several variables, including new customer
connections, customer consumption levels and future rate increases, which cannot be accurately estimated.
Portions of these refund amounts are payable annually through 2033 and amounts not paid by the contract
expiration dates become non-refundable.
(cid:120)(cid:3) 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.
(cid:21)(cid:21)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
Expected obligations are not included in the above table because the amounts and timing are dependent upon
several variables, which cannot be accurately estimated.
(cid:120)(cid:3) Uncertain tax positions – We have uncertain tax positions of $7,898. Although we believe our tax positions
comply with applicable law, we have made judgments as to the sustainability of each uncertain tax position based
on its technical merits. Due to the uncertainty of future cash outflows, if any, associated with our uncertain tax
positions, we are unable to make a reasonable estimate of the timing or amounts that may be paid. See Note 7 –
Income Taxes in this Annual Report for further information on our uncertain tax positions.
We will fund these contractual obligations with cash flows from operations and liquidity sources held by or available to
us.
The Company is routinely involved in legal matters, including both asserted and unasserted legal claims, during the
ordinary course of business. See Note 9 – Commitments and Contingencies in this Annual Report for a discussion of the
Company’s legal matters. It is not always possible for management to make a meaningful estimate of the potential loss or
range of loss associated with such litigation. 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.
Capitalization
The following table summarizes our capitalization as of December 31, 2023 and 2022:
December 31,
Long-term debt (1)
Essential Utilities stockholders' equity
2023
2022
54.1%
45.9%
100.0%
55.2%
44.8%
100.0%
(1)(cid:3) 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.
Over the past two years, the changes in the capitalization ratios primarily resulted from the issuance of debt to finance our
acquisitions and capital program, changes in net income, the issuance of common stock, and the declaration of dividends.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial condition and results of operations are impacted by the methods, assumptions, and estimates used in the
application of critical accounting policies. The following accounting policies are particularly important to our financial
condition or results of operations and require estimates or other judgments of matters of uncertainty. Changes in the
estimates or other judgments included within these accounting policies could result in a significant change to the financial
statements. We believe our most critical accounting policies include the use of regulatory assets and liabilities, revenue
recognition, the valuation of our long-lived assets (which consist primarily of utility plant in service, regulatory assets,
and goodwill), our accounting for post-retirement benefits, and our accounting for income taxes. We have discussed the
selection and development of our critical accounting policies and estimates with the Audit Committee of the Board of
Directors.
(cid:21)(cid:22)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
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participants to rate or transactional regulatory proceedings who might offer different views on various aspects of such
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(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:88)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:73)(cid:88)(cid:81)(cid:71)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)
ruling.
Valuation of Long-Lived Assets, Goodwill and Intangible Assets(cid:3)(cid:326)(cid:3)(cid:58)(cid:72)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:79)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
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(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:71)(cid:76)(cid:86)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:69)(cid:68)(cid:81)(cid:71)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)
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(cid:71)(cid:76)(cid:86)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:50)(cid:88)(cid:85)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:79)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:15)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:16)(cid:82)(cid:73)(cid:16)(cid:88)(cid:86)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)
assets, are reviewed for impairment when changes in circumstances or events occur. These circumstances or events could
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(cid:58)(cid:75)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:70)(cid:76)(cid:85)(cid:70)(cid:88)(cid:80)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)
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(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:24)(cid:19)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:12)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:76)(cid:73)(cid:3)(cid:76)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)
(cid:72)(cid:91)(cid:70)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:88)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:70)(cid:76)(cid:85)(cid:70)(cid:88)(cid:80)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:73)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:69)(cid:72)(cid:87)(cid:90)(cid:72)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:17)(cid:3)(cid:3)(cid:41)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)
the present value of future net cash flows associated with the asset, discounted using a discount rate commensurate with
(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:86)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)
(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:69)(cid:88)(cid:71)(cid:74)(cid:72)(cid:87)(cid:86)(cid:15)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:15)(cid:3)(cid:75)(cid:76)(cid:86)(cid:87)(cid:82)(cid:85)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:87)(cid:85)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:68)(cid:87)(cid:68)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:79)(cid:72)(cid:89)(cid:68)(cid:81)(cid:87)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)
include significant inherent uncertainties, since they involve forecasting future events. If changes in circumstances or
(cid:21)(cid:23)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
events occur, or estimates and assumptions that were used in this review are changed, we may be required to record an
impairment charge on our long-lived assets. 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. 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. 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. 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. If
we perform a quantitative test and determine that the fair value of a reporting unit is less than its carrying amount, we
would record an impairment loss for the amount by which a reporting unit’s carrying amount exceeds its fair value, not to
exceed the carrying amount of goodwill. The assessment requires significant management judgment and estimates that
are based on budgets, general strategic business plans, historical trends and other data and relevant factors. If changes in
circumstances or events occur, or estimates and assumptions that were used in our impairment test change, we may be
required to record an impairment charge for goodwill. Refer to Note 1 – Summary of Significant Accounting Policies –
Goodwill in this Annual Report for further information.
As part of the October 1, 2023 annual goodwill assessment, we elected to perform a quantitative goodwill impairment
assessment on the goodwill attributable to our Regulated Natural Gas reporting unit and a qualitative assessment for our
Regulated Water and Other reporting units. Additionally, the Company performed a market capitalization reconciliation
to further support the Company’s estimated fair value and support the implied premium. Based on our analysis, we
determined that none of the goodwill of our reporting units was impaired.
We generally assumed operating margins in future years would increase as we continue to integrate and implement our
rate base growth strategy. However, unforeseen events, such as adverse changes in market conditions and changes in the
regulatory environment which could lead to disallowances of a portion of capital investments, may result in future non-
cash impairment charges that could be material. 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)
Increase in discount rate by 100 basis points
Decrease in Market Multiples by 1x
Reduction in terminal value EBITDA(2) by 10%
Percentage decrease in headroom of Regulated Natural Gas
Reporting Unit
40%
46%
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 (cid:326)(cid:3)(cid:58)(cid:72)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:83)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
plans that provide for post-retirement benefits other than pensions. Accounting for pension and other post-retirement
benefits requires an extensive use of assumptions including the discount rate, expected return on plan assets, the rate of
(cid:21)(cid:24)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
future compensation increases received by our employees, mortality, turnover and medical costs. Each assumption is
reviewed annually with assistance from our actuarial consultant, who provides guidance in establishing the assumptions.
The assumptions are selected to represent the average expected experience over time and may differ in any one year from
actual experience due to changes in capital markets and the overall economy. These differences will impact the amount of
pension and other post-retirement benefits expense that we recognize.
Our discount rate assumption, which is used to calculate the present value of the projected benefit payments of our post-
retirement benefits, was determined by selecting a hypothetical portfolio of high quality corporate bonds appropriate to
match the projected benefit payments of the plans. The selected bond portfolio was derived from a universe of Aa-graded
corporate bonds. The discount rate was then developed as the rate that equates the market value of the bonds purchased to
the discounted value of the projected benefit payments of the plans. A decrease in the discount rate would generally
increase our post-retirement benefits expense and benefit obligation. 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. 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. 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. 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.
Our expected return on plan assets is determined by evaluating the asset class return expectations with our advisors as
well as actual, long-term, historical results of our asset returns. The Company’s market-related value of plan assets is
equal to the fair value of the plans’ assets as of the last day of its fiscal year and is a determinant for the expected return
on plan assets, which is a component of post-retirement benefits expense. The allocation of our plans’ assets impacts our
expected return on plan assets. As of December 31, 2023, the expected return on plan assets is based on a targeted
allocation of 20% to 40% return seeking assets and 30% to 70% liability hedging assets for our pension plan, and a
targeted allocation of 50% to 70% return seeking assets and 30% to 50% liability hedging assets for our other post-
retirement benefit plans. 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 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. For 2023, we used a 6.8%
expected return on plan assets assumption and are currently reviewing this assumption for 2024.
Funding requirements for qualified defined benefit pension plans are determined by government regulations and not by
accounting pronouncements. In accordance with funding rules and our funding policy, during 2024 our pension
contribution is expected to be $9,393. Future years’ contributions will be subject to economic conditions, plan participant
data and the funding rules in effect at such time as the funding calculations are performed, though we expect future
changes in the amount of contributions and expense recognized to be generally included in customer rates.
Accounting for Income Taxes (cid:326)(cid:3)(cid:58)(cid:72)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:83)(cid:68)(cid:92)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:73)(cid:88)(cid:81)(cid:71)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
deferred income tax liabilities and assets that results from estimating temporary differences resulting from the treatment of
specific items, such as depreciation, for tax and financial statement reporting. Generally, these differences result in the
recognition of a deferred tax asset or liability on our consolidated balance sheet and require us to make judgments
regarding the probability of the ultimate tax impact of the various transactions we enter into. Based on these judgments,
we may record tax reserves or adjustments to valuation allowances on deferred tax assets to reflect the expected
realization of future tax benefits. Actual income taxes could vary from these estimates and changes in these estimates can
increase income tax expense in the period that these changes in estimates occur.
Our determination of what qualifies as a capital cost versus a tax deduction, for qualifying utility asset improvements, as it
relates to our income tax accounting method, is subject to subsequent adjustment as well as IRS audits, changes in income
(cid:21)(cid:25)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In thousands of dollars, except per share amounts)
tax laws, including regulations regarding tax-basis depreciation as it applies to our capital expenditures, or qualifying
utility asset improvements, the expiration of a statute of limitations, or other unforeseen matters could impact the tax
benefits that have already been recognized. We establish reserves for uncertain tax positions based upon management’s
judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position
reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits.
We believe our tax positions comply with applicable law and that we have adequately recorded reserves as required.
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.
MPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
We describe the impact of recent accounting pronouncements in Note 1 – Summary of Significant Accounting Policies in
this Annual Report.
(cid:21)(cid:26)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Management’s Report On Internal Control Over Financial Reporting
Management of Essential Utilities, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.
The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America. The Company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In assessing the effectiveness of internal control over financial reporting, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated
Framework (2013). As a result of management’s assessment and based on the criteria in the framework, management has
concluded that, as of December 31, 2023, the Company’s internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included
herein.
Christopher H. Franklin
Chairman, President and Chief Executive Officer
Daniel J. Schuller
Executive Vice President and Chief Financial Officer
February 29, 2024
(cid:21)(cid:27)
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Essential Utilities, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets, including the consolidated statements of capitalization, of Essential
Utilities, Inc. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of
operations and comprehensive income, of equity, and of cash flows for each of the three years in the period ended December 31, 2023,
including the related notes and schedule of condensed parent company financial statements as of December 31, 2023 and 2022 and for
each of the three years in the period ended December 31, 2023 appearing after the signature pages (collectively referred to as the
“consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31,
2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s
Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
(cid:21)(cid:28)
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Accounting for Rate Regulation
As described in Notes 1 and 6 to the consolidated financial statements, most of the operating companies of the Company that are
regulated public utilities are subject to regulation by the utility commissions of the states in which they operate. Some of the operating
companies that are regulated public utilities are subject to rate regulation by county or city government. As of December 31, 2023,
regulatory assets were $1.80 billion and regulatory liabilities were $0.85 billion. Regulated public utilities follow the Financial
Accounting Standards Board’s accounting guidance for regulated operations, which provides for the recognition of regulatory assets
and liabilities as allowed by regulators for costs or credits that are reflected in current rates or are considered probable of being
included in future rates. The regulatory assets represent costs that are probable to be fully recovered from customers in future rates
while regulatory liabilities represent amounts that are expected to be refunded to customers in future rates or amounts recovered from
customers in advance of incurring the costs. The regulatory assets or liabilities are then relieved as the cost or credit is reflected in the
Company’s rates charged for utility service. If, as a result of a change in circumstances, it is determined that a regulated operating
company no longer meets the criteria to apply regulatory accounting, the operating company would have to discontinue regulatory
accounting and write-off the respective regulatory assets and liabilities. Management makes significant judgments and estimates to
record regulatory assets and liabilities. For each regulatory jurisdiction with regulated operations, management evaluates at the end of
each reporting period whether the regulatory assets and liabilities continue to meet the probable criteria for future recovery or refund.
The evaluation considers factors such as regulatory orders or guidelines, in the same regulatory jurisdiction, of a specific matter or a
similar matter, as provided to the Company in the past or to other regulated utilities. In addition, the evaluation may be impacted by
changes in the regulatory environment and pending or new legislation that could impact the ability to recover costs through regulated
rates. There may be multiple participants to rate or transactional regulatory proceedings who might offer different views on various
aspects of such proceedings and, in these instances, may challenge the prudence of business policies and practices, seek cost
disallowances or request other relief.
The principal considerations for our determination that performing procedures relating to management’s accounting for rate regulation
is a critical audit matter are the significant judgment by management when assessing the impact of regulation on the accounting for
regulatory assets and liabilities, which in turn led to a high degree of auditor judgment and effort in performing procedures and in
evaluating audit evidence related to whether the regulatory assets will be recovered and liabilities will be refunded.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s
evaluation of regulatory matters impacting regulatory assets and liabilities, including controls over the recovery of regulatory assets
and the refund of regulatory liabilities. These procedures also included, among others (i) obtaining the Company’s correspondence
with regulators and assessing the reasonableness of management’s judgments regarding the recovery of regulatory assets and refund of
regulatory liabilities, (ii) assessing the reasonableness of management’s accounting judgments related to new and updated regulatory
orders and guidelines, and (iii) testing the calculation of regulatory assets and liabilities based on provisions outlined in regulatory
correspondence.
Philadelphia, Pennsylvania
February 29, 2024
We have served as the Company’s auditor since 2000.
(cid:22)(cid:19)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except per share amounts)
Assets
Property, plant and equipment, at cost
Less: accumulated depreciation
Net property, plant and equipment
Current assets:
Cash and cash equivalents
Accounts receivable, net
Unbilled revenues
Inventory - materials and supplies
Inventory - gas stored
Current assets held for sale
Prepayments and other current assets
Regulatory assets
Total current assets
Regulatory assets
Deferred charges and other assets, net
Funds restricted for construction activity
Goodwill
Non-current assets held for sale
Operating lease right-of-use assets
Intangible assets
Total assets
See accompanying notes to consolidated financial statements.
December 31,
2023
2022
$
14,977,021
2,879,949
12,097,072
13,737,387
2,606,441
11,130,946
4,612
144,300
101,436
47,494
65,173
-
99,884
29,080
491,979
1,766,892
102,388
1,381
2,340,738
-
37,416
3,593
16,841,459
$
11,398
206,324
170,504
46,592
153,143
11,167
39,759
19,272
658,159
1,342,753
166,653
1,342
2,340,792
32,124
41,734
4,604
15,719,107
$
$
(cid:22)(cid:20)
December 31,
2023
2022
$
138,297 $
4,137,696
1,706,675
(86,485)
5,896,183
133,486
3,793,262
1,534,331
(83,693)
5,377,386
6,870,593
44,508
6,826,085
6,418,039
46,982
6,371,057
67,415
160,123
221,191
13,358
53,084
40,641
-
31,270
83,929
126,916
797,927
1,628,324
128,755
820,910
848
34,425
-
38,850
24,086
2,676,198
199,356
228,500
238,843
28,694
47,063
34,393
3,263
35,276
75,808
130,673
1,021,869
1,345,766
114,732
778,754
843
37,666
974
31,244
28,562
2,338,541
645,066
610,254
$ 16,841,459 $15,719,107
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(In thousands of dollars, except per share amounts)
Essential Utilities stockholders' equity:
Liabilities and Equity
Common stock at $0.50 par value, authorized 600,000,000 shares, issued 276,595,228 and 266,973,321 as of December
31, 2023 and December 31, 2022
Capital in excess of par value
Retained earnings
Treasury stock, at cost, 3,299,191 and 3,236,237 shares as of December 31, 2023 and December 31, 2022
Total stockholders' equity
Long-term debt, excluding current portion
Less: debt issuance costs
Long-term debt, excluding current portion, net of debt issuance costs
Commitments and contingencies (See Note 9)
Current liabilities:
Current portion of long-term debt
Loans payable
Accounts payable
Book overdraft
Accrued interest
Accrued taxes
Liabilities related to assets held for sale
Regulatory liabilities
Dividends payable
Other accrued liabilities
Total current liabilities
Deferred credits and other liabilities:
Deferred income taxes and investment tax credits
Customers' advances for construction
Regulatory liabilities
Asset retirement obligations
Operating lease liabilities
Non-current liabilities related to assets held for sale
Pension and other postretirement benefit liabilities
Other
Total deferred credits and other liabilities
Contributions in aid of construction
Total liabilities and equity
See accompanying notes to consolidated financial statements.
(cid:22)(cid:21)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Operating revenues
Operating expenses:
Operations and maintenance
Purchased gas
Depreciation
Amortization
Taxes other than income taxes
Total operating expenses
Operating income
Other expense (income):
Interest expense
Interest income
Allowance for funds used during construction
Gain on sale of other assets
Other
Income before income taxes
Income tax benefit
Net income
Comprehensive income
Net income per common share:
Basic
Diluted
Average common shares outstanding during the period:
Basic
Diluted
See accompanying notes to consolidated financial statements.
Years ended December 31,
2023
2,053,824 $
2022
2021
2,288,032 $
1,878,144
$
575,518
352,306
338,655
5,040
90,208
1,361,727
613,649
601,995
315,811
5,366
90,024
1,626,845
550,580
340,262
292,191
5,761
86,641
1,275,435
692,097
661,187
602,709
283,362
(3,401)
(16,967)
(65)
(2,613)
431,781
(66,445)
498,226 $
238,116
(3,675)
(23,665)
(991)
494
450,908
(14,329)
465,237 $
207,709
(2,384)
(20,792)
(976)
(2,848)
422,000
(9,612)
431,612
498,226 $
465,237 $
431,612
1.86 $
1.86 $
1.77 $
1.77 $
1.68
1.67
267,171
262,246
257,487
267,659
262,868
258,180
$
$
$
$
(cid:22)(cid:22)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands of dollars, except per share amounts)
Stockholders' equity:
Common stock, $0.50 par value
Capital in excess of par value
Retained earnings
Treasury stock, at cost
Total stockholders' equity
Long-term debt of subsidiaries (substantially collateralized by utility plant):
Maturity Date Range
2023 to 2033
2023 to 2039
2024 to 2058
2023 to 2056
2023 to 2059
2023 to 2061
2026 to 2036
2025 to 2027
2025
2026
Interest Rate Range
0.00% to 0.99%
1.00% to 1.99%
2.00% to 2.99%
3.00% to 3.99%
4.00% to 4.99%
5.00% to 5.99%
6.00% to 6.99%
7.00% to 7.99%
8.00% to 8.99%
9.00% to 9.99%
Notes payable to bank under revolving credit agreement, variable rate, due 2027
Unsecured notes payable:
Notes at 2.40% due 2031
Notes at 2.704% due 2030
Notes ranging from 3.01% to 3.59%, due 2029 through 2050
Notes at 4.28%, due 2049
Notes at 5.30%, due 2052
Notes at 5.95%, due 2023 through 2034
Total long-term debt
Current portion of long-term debt
Long-term debt, excluding current portion
Less: debt issuance costs
Long-term debt, excluding current portion, net of debt issuance costs
December 31,
2023
2022
$
138,297 $
4,137,696
1,706,675
(86,485)
5,896,183
2,935
7,538
207,917
1,313,932
1,245,727
312,745
31,000
28,125
1,289
11,800
3,163,008
133,486
3,793,262
1,534,331
(83,693)
5,377,386
1,875
8,369
209,755
1,351,432
1,403,313
14,357
31,000
28,378
2,116
11,800
3,062,395
720,000
490,000
400,000
500,000
1,125,000
500,000
500,000
30,000
6,938,008
67,415
6,870,593
44,508
6,826,085
400,000
500,000
1,125,000
500,000
500,000
40,000
6,617,395
199,356
6,418,039
46,982
6,371,057
Total capitalization
$
12,722,268 $ 11,748,443
See accompanying notes to consolidated financial statements.
(cid:22)(cid:23)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands of dollars, except per share amounts)
Balance at December 31, 2021
$
128,050 $
Balance at December 31, 2020
Net income
Dividends declared and paid ($1.0378 per share)
Issuance of common stock from stock purchase contracts
(127,749 shares)
Issuance of common stock under dividend reinvestment plan
(374,824 shares)
Issuance of common stock from forward equity sale agreement
(6,700,000 shares)
Repurchase of stock (76,732 shares)
Equity compensation plan (206,163 shares)
Exercise of stock options (122,297 shares)
Stock-based compensation
Other
Net income
Dividends declared and paid ($1.1104 per share)
Dividends of March 1, 2023 declared ($0.287 per share)
Issuance of common stock from stock purchase contracts
(9,029,461 shares)
Issuance of common stock under dividend reinvestment plan
(368,278 shares)
Issuance of common stock from at-the-market sale agreements
(1,321,994 shares)
Repurchase of stock (25,037 shares)
Equity compensation plan (81,516 shares)
Exercise of stock options (69,684 shares)
Stock-based compensation
Other
Net income
Dividends declared and paid ($1.1882 per share)
Dividends of March 1, 2024 declared ($0.3071 per share)
Issuance of common stock under dividend reinvestment plan
(430,487 shares)
Issuance of common stock from at-the-market sale agreements
(8,938,839 shares)
Repurchase of stock (89,785 shares)
Equity compensation plan (244,407 shares)
Exercise of stock options (8,174 shares)
Stock-based compensation
Other
Balance at December 31, 2023
$
See accompanying notes to consolidated financial statements.
Balance at December 31, 2022
$
133,486 $
Common
stock
124,285 $
$
Capital in
excess of par
value
3,379,057 $
Retained
earnings
1,261,862 $
431,612
(258,650)
Treasury
stock
(81,327)
-
-
$
Total
4,683,877
431,612
(258,650)
-
-
-
-
-
-
(623)
-
1,434,201 $
465,237
(288,632)
(75,808)
-
-
-
-
-
-
(667)
-
1,534,331 $
498,226
(240,999)
(83,929)
-
-
-
(3,291)
-
-
-
1,003
(83,615)
-
-
-
-
-
-
(1,192)
-
-
-
1,114
(83,693)
-
-
-
-
16,799
299,739
(3,291)
-
4,172
9,375
817
5,184,450
465,237
(288,632)
(75,808)
-
16,619
63,040
(1,192)
-
2,475
11,427
(230)
5,377,386
498,226
(240,999)
(83,929)
$
$
-
-
(64)
16,612
296,389
-
(103)
4,111
9,998
(186)
3,705,814 $
-
-
-
16,435
62,379
-
(41)
2,440
12,094
(1,344)
3,793,262 $
-
-
-
-
-
64
187
3,350
-
103
61
-
-
-
-
-
184
661
-
41
35
-
-
-
-
-
4,515
(4,515)
215
15,790
-
-
16,005
4,470
-
122
4
-
-
-
(3,981)
-
-
-
1,189
138,297 $ 4,137,696 $ 1,706,675 $ (86,485)
318,513
-
(122)
283
11,330
(1,360)
-
-
-
-
(954)
-
322,983
(3,981)
-
287
10,376
(171)
$ 5,896,183
(cid:22)(cid:24)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars, except per share amounts)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization
Deferred income taxes
Provision for doubtful accounts
Stock-based compensation
Gain on sale of utility system and other assets
Net change in receivables, deferred purchased gas costs, inventory and prepayments
Net change in payables, accrued interest, accrued taxes and other accrued liabilities
Pension and other postretirement benefits contributions
Other
Net cash flows from operating activities
Cash flows from investing activities:
Property, plant and equipment additions, including the debt component of allowance for
funds used during construction of $5,241, $6,047 and $4,510
Acquisitions of utility systems and other, net
Net proceeds from the sale of utility systems and other assets
Other
Net cash flows used in investing activities
Cash flows from financing activities:
Customers' advances and contributions in aid of construction
Repayments of customers' advances
Net proceeds (repayments) of short-term debt
Proceeds from long-term debt
Repayments of long-term debt
Change in cash overdraft position
Proceeds from issuance of common stock under dividend reinvestment plan
Proceeds from issuance of common stock from forward equity sale agreement
Proceeds from issuance of common stock from at-the-market sale agreement
Proceeds from exercised stock options
Repurchase of common stock
Dividends paid on common stock
Other
Net cash flows from financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash paid during the year for:
Interest, net of amounts capitalized
Income taxes
Non-cash investing activities:
Property, plant and equipment additions purchased at the period end, but not yet paid
Non-cash utility property contributions
See accompanying notes to consolidated financial statements.
Refer to Note 15 – Employee Stock and Incentive Plan for a description of non-cash activities.
Years ended December 31,
2023
2022
2021
$
498,226 $
465,237 $
431,612
343,695
(79,845)
23,209
11,323
(65)
189,989
(14,559)
(20,343)
(18,043)
933,587
321,177
(23,045)
27,631
12,206
(991)
(223,335)
53,761
(22,027)
(10,308)
600,306
297,952
(8,514)
27,336
10,078
(1,589)
(109,605)
5,190
(15,135)
7,354
644,679
(1,199,103)
(45,303)
41,758
(19,080)
(1,221,728)
(1,062,763)
(116,891)
1,081
271
(1,178,302)
(1,020,519)
(36,326)
1,819
(1,032)
(1,056,058)
23,982
(8,471)
(68,377)
1,207,619
(876,379)
(15,336)
16,005
-
322,983
287
(3,981)
(316,806)
(171)
281,355
(6,786)
11,398
4,612 $
11,714
(5,006)
163,500
1,646,742
(977,175)
(53,028)
16,619
-
63,040
2,475
(1,192)
(288,632)
(230)
578,827
831
10,567
11,398 $
15,264
(7,725)
(13,350)
1,095,171
(769,546)
37,719
16,799
299,739
-
4,172
(3,291)
(258,650)
817
417,119
5,740
4,827
10,567
272,532 $
7,839
102,770 $
56,297
225,820 $
11,269
201,792
5,692
102,129 $
35,698
95,945
36,882
$
$
$
(cid:22)(cid:25)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
Note 1 – Summary of Significant Accounting Policies
Nature of Operations(cid:3)(cid:326) Essential Utilities, Inc. (“Essential Utilities,” the “Company,” “we,” “our”, or “us”) is the holding
company for regulated utilities providing water, wastewater, or natural gas services concentrated in Pennsylvania, Ohio,
Texas, Illinois, North Carolina, New Jersey, Indiana, Virginia, and Kentucky under the Aqua and Peoples brands. One of
our largest operating subsidiaries is Aqua Pennsylvania, Inc., which accounted for approximately 56% of our Regulated
Water segment’s operating revenues and approximately 68% of our Regulated Water segment’s income for 2023. As of
December 31, 2023, Aqua Pennsylvania provided water or wastewater services to approximately one-half of the total
number of Regulated Water customers we serve. Aqua Pennsylvania’s service territory is located in the suburban areas
north and west of the City of Philadelphia and in 27 other counties in Pennsylvania. The Company’s 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.(cid:3)(cid:3)Approximately
95% of the total number of natural gas utility customers we serve are in western Pennsylvania. The Company also
operates market-based activities, conducted through its non-regulated subsidiaries, that provide utility service line
protection solutions and repair services to households and gas marketing and production activities.
In December 2022, the Company signed an agreement to sell its regulated natural gas utility assets in West Virginia,
which represented approximately two percent of the Company’s regulated natural gas customers. The sale closed on
October 1, 2023, and concluded our regulated utility operations in West Virginia. In October 2023, the Company entered
into an agreement to sell its interest in three non-utility local microgrid and distribution energy projects. This sale was
completed in January 2024(cid:17)(cid:3)(cid:3)See Note 6 – Assets Held for Sale and Dispositions for further information.(cid:3)(cid:3)
Regulation(cid:3)(cid:326)(cid:3)(cid:48)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)
commissions of the states in which they operate. The respective utility commissions have jurisdiction with respect to
rates, service, accounting procedures, issuance of securities, acquisitions and other matters. Some of the operating
companies that are regulated public utilities are subject to rate regulation by county or city government. Regulated public
utilities follow the Financial Accounting Standards Board’s (“FASB”) accounting guidance for regulated operations,
which provides for the recognition of regulatory assets and liabilities as allowed by regulators for costs or credits that are
reflected in current rates or are considered probable of being included in future rates. Costs, for which the Company has
received or expects to receive prospective rate recovery, are deferred as a regulatory asset and amortized over the period
of rate recovery in accordance with the FASB’s accounting guidance for regulated operations. The regulatory assets or
liabilities are then relieved as the cost or credit is reflected in Company’s rates charged for utility service. If, as a result of
a change in circumstances, it is determined that a regulated operating company no longer meets the criteria to apply
regulatory accounting, the operating company would have to discontinue regulatory accounting and write-off the
respective regulatory assets and liabilities. See Note 6 - Regulatory Assets and Liabilities for further information
regarding the Company’s regulatory assets.
The Company makes significant judgments and estimates to record regulatory assets and liabilities. For each regulatory
jurisdiction with regulated operations, the Company evaluates at the end of each reporting period, whether the regulatory
assets and liabilities continue to meet the probable criteria for future recovery or refund. The evaluation considers factors
such as regulatory orders or guidelines, in the same regulatory jurisdiction, of a specific matter or a similar matter, as
provided to the Company in the past or to other regulated utilities. In addition, the evaluation may be impacted by
changes in the regulatory environment and pending or new legislation that could impact the ability to recover costs
through regulated rates. There may be multiple participants to rate or transactional regulatory proceedings who might
offer different views on various aspects of such proceedings, and in these instances, may challenge the prudence of our
business policies and practices, seek cost disallowances or request other relief.
Use of Estimates in Preparation of Consolidated Financial Statements(cid:3)(cid:326)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(cid:22)(cid:26)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Basis of Presentation(cid:3)(cid:178)(cid:3)The consolidated financial statements include the accounts of the Company and its subsidiaries.
All intercompany accounts and transactions have been eliminated.
Property, Plant and Equipment and Depreciation (cid:326) Property, plant and equipment consist primarily of utility plant. The
cost of additions includes contracted cost, direct labor and fringe benefits, materials, overheads, and for additions meeting
certain criteria, allowance for funds used during construction. Utility systems acquired are typically recorded at estimated
original cost of utility plant when first devoted to utility service and the applicable depreciation is recorded to
accumulated depreciation. Further, utility systems acquired under fair value regulations would be recorded based on the
valuation of the utility plant as approved by the respective utility commission. The difference between the estimated
original cost, less applicable accumulated depreciation, and the purchase price may be recorded as an acquisition
adjustment within utility plant as permitted by the applicable regulatory jurisdiction. At December 31, 2023 and 2022,
utility plant includes a net credit acquisition adjustment of $6,444 and $6,076, respectively, which is generally being
amortized from 10 to 53 years. Amortization of the acquisition adjustments totaled $2,103 in 2023, $2,788 in 2022, and
$2,842 in 2021.
Utility expenditures for maintenance and repairs, including major maintenance projects and minor renewals, are charged
to operating expenses when incurred in accordance with the system of accounts prescribed by the utility commissions of
the states in which the company operates. The cost of new units of property and betterments are capitalized. Utility
expenditures for water main cleaning and relining of pipes are deferred and are presented in net property, plant and
equipment in accordance with the FASB’s accounting guidance for regulated operations. As of December 31, 2023,
$1,635 of these costs have been incurred since the last respective rate proceeding and the Company expects to recover
these costs in future rates.
The cost of software upgrades and enhancements are capitalized if they result in added functionality, which enables the
software to perform tasks it was previously incapable of performing. Information technology costs associated with major
system installations, conversions and improvements, such as software training, data conversion and business process
reengineering costs, are deferred as a regulatory asset if the Company expects to recover these costs in future rates. If
these costs are not deferred, then these costs are charged to operating expenses when incurred. As of December 31, 2023,
$44,238 of these costs have been deferred since the last respective rate proceeding as a regulatory asset, and the deferral is
reported as a component of net property, plant and equipment.
When units of utility property are replaced, retired or abandoned, the recorded value thereof is credited to the asset
account and such value, together with the net cost of removal, is charged to accumulated depreciation. To the extent the
Company anticipates recovery of the cost of removal or other retirement costs through rates after the retirement costs are
incurred, a regulatory asset is recorded as those costs are incurred. In some cases, the Company recovers retirement costs
through rates during the life of the associated asset and before the costs are incurred. These amounts, which are not yet
utilized, result in a regulatory liability being reported based on the amounts previously recovered through customer rates.
The straight-line remaining life method is used to compute depreciation on utility plant. Generally, the straight-line
method is used with respect to transportation and mechanical equipment, office equipment and laboratory equipment.
Impairment of Long-Lived Assets(cid:3)(cid:16) Long-lived assets of the Company, 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. These circumstances or events could include a decline in the market value or physical condition of a long-
lived asset, an adverse change in the manner in which long-lived assets are used or planned to be used, a change in
historical trends, operating cash flows associated with the long-lived assets, changes in macroeconomic conditions,
industry and market conditions, or overall financial performance. When these circumstances or events occur, the
Company determines whether it is more likely than not that the fair value of those assets is less than their carrying
amount. If the Company determines that it is more likely than not (that is, the likelihood of more than 50 percent), the
Company would recognize an impairment charge if it is determined that the carrying amount of an asset exceeds the sum
of the undiscounted estimated cash flows. In this circumstance, the Company would recognize an impairment charge
equal to the difference between the carrying amount and the fair value of the asset. Fair value is estimated to be the
(cid:22)(cid:27)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
present value of future net cash flows associated with the asset, discounted using a discount rate commensurate with the
risk and remaining life of the asset. During the years ended December 31, 2022 and 2021, the Company recorded an
impairment loss to write down a portion of the operating lease right-of-use asset for office space not used in operations to
fair value. Refer to Note 10 – Leases, for further details.
Regulatory assets are reviewed for the continued application of the FASB accounting guidance for regulated operations.
The Company’s review determines whether there have been changes in circumstances or events, such as regulatory
disallowances, or abandonments, that have occurred that require adjustments to the carrying value of these assets.
Adjustments to the carrying value of these assets would be made in instances where their inclusion in the rate-making
process is unlikely. For utility plant in service, we would recognize an impairment loss for any amount disallowed by the
respective utility commission.
Allowance for Funds Used During Construction (cid:326)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:36)(cid:41)(cid:56)(cid:39)(cid:38)(cid:180)(cid:12)(cid:3)
represents the capitalized cost of funds used to finance the construction of utility plant. In general, AFUDC is applied to
construction projects requiring more than one month to complete. No AFUDC is applied to projects funded by customer
advances for construction, contributions in aid of construction, or applicable state-revolving fund loans. AFUDC includes
the net cost of borrowed funds and a rate of return on other funds when used and is recovered through rates as the utility
plant is depreciated. The amount of AFUDC related to equity funds in 2023 was $11,726, 2022 was $17,618, and 2021
was $16,282. No interest was capitalized by our market-based businesses.
Lease Accounting(cid:3)(cid:326)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:76)(cid:87)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)
A contract contains a lease if the contract conveys the right to control the use of identified property, plant or equipment for
a period of time in exchange for consideration. We enter into operating lease contracts for the right to utilize certain land,
office facilities, office equipment, and vehicles from third parties. For contracts that extend for a period greater than 12
months, we recognize a right of use asset and a corresponding lease liability on our consolidated balance sheet. The present
value of each lease is based on the future minimum lease payments in accordance with Accounting Standards Codification
(cid:11)(cid:179)(cid:36)(cid:54)(cid:38)(cid:180)(cid:12)(cid:3)(cid:27)(cid:23)(cid:21)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:86)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:17)(cid:3)(cid:3)
Recognition of Revenues (cid:326)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)
happens over time as the services are delivered and the performance obligation is satisfied. The Company’s utility
revenues recognized in an accounting period includes amounts billed to customers on a cycle basis and unbilled amounts
based on estimated usage from the last billing to the end of the accounting period. Unbilled amounts are calculated by
deriving estimates based on an average usage of the prior month. The Company’s actual results could differ from these
estimates, which would result in operating revenues being adjusted in the period that the revision to our estimates are
determined.
(cid:22)(cid:28)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Generally, payment is due within 30 days once a bill is issued to a customer. Sales tax and other taxes we collect on
behalf of government authorities, concurrent with our revenue-producing activities, are primarily excluded from revenue.
The following table presents our revenues disaggregated by major source and customer class for the years ended
December 31:
2023
Water Revenues
Wastewater
Revenues
Natural Gas
Revenues
Other Revenues
Revenues from contracts with customers:
Residential
Commercial
Fire protection
Industrial
Gas transportation
Other water
Other wastewater
Other utility
Revenues from contracts with customers
Alternative revenue program
Other and eliminations
Consolidated
$
$
641,351
180,731
41,257
33,949
-
51,527
-
-
948,815
2,236
-
951,051
Revenues from contracts with customers:
2022
Water Revenues
Residential
Commercial
Fire protection
Industrial
Gas transportation
Other water
Other wastewater
Other utility
Revenues from contracts with customers
Alternative revenue program
Other and eliminations
Consolidated
$
$
607,473
168,460
38,970
32,581
-
55,389
-
-
902,873
3,309
-
906,182
Revenues from contracts with customers:
2021
Water Revenues
Residential
Commercial
Fire protection
Industrial
Gas transportation
Other water
Other wastewater
Customer rate credits
Other utility
Revenues from contracts with customers
Alternative revenue program
Other and eliminations
Consolidated
$
$
561,996
151,071
35,984
30,230
-
53,488
-
-
-
832,769
1,760
-
834,529
(cid:23)(cid:19)
$
$
$
$
$
$
139,188
35,530
-
2,087
-
-
10,589
-
187,394
68
-
187,462
Wastewater
Revenues
122,612
30,340
-
1,755
-
-
10,676
-
165,383
(71)
-
165,312
Wastewater
Revenues
99,931
22,060
-
1,729
-
-
8,860
-
-
132,580
(264)
-
132,316
$
$
$
$
$
$
519,406
111,272
-
3,232
184,598
-
-
43,163
861,671
2,088
-
863,759
$
$
-
-
-
-
-
-
-
14,863
14,863
-
36,689
51,552
Natural Gas
Revenues
Other Revenues
720,490
149,653
-
5,636
205,825
-
-
61,393
1,142,997
365
-
1,143,362
$
$
-
-
-
-
-
-
-
11,478
11,478
-
61,698
73,176
Natural Gas
Revenues
Other Revenues
530,338
99,596
-
3,427
198,195
-
-
(5,000)
32,812
859,368
534
-
859,902
$
$
-
-
-
-
-
-
-
-
13,358
13,358
-
38,039
51,397
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Revenues from Contracts with Customers – These revenues are composed of four main categories: water, wastewater,
natural gas, and other. Water revenues represent revenues earned for supplying customers with water service.
Wastewater revenues represent revenues earned for treating wastewater and releasing it into the environment. Natural gas
revenues represent revenues earned for the gas commodity and delivery of natural gas to customers. Other revenues are
associated fees that relate to our utility businesses but are not water, wastewater, or natural gas revenues. Refer to the
description below for a discussion of the performance obligation for each of these revenue streams.
(cid:120)(cid:3) Tariff Revenues – These revenues are categorized by customer class: residential, commercial, fire protection,
industrial, gas transportation, other water, and other wastewater. The rates that generate these revenues are
approved by the respective state utility commission, and revenues are billed cyclically and accrued for when
unbilled. The regulated natural gas rates are set and adjusted for increases or decreases in our purchased gas costs
through purchased gas adjustment mechanisms. Purchased gas adjustment mechanisms provide us with a means
to recover purchased gas costs on an ongoing basis without filing a rate case. Other water and other wastewater
revenues consists primarily of fines, penalties, surcharges, and availability lot fees. Our performance obligation
for tariff revenues is to provide potable water, wastewater treatment service, or delivery and sale of natural gas to
customers. This performance obligation is satisfied over time as the services are rendered. The amounts that the
Company has a right to invoice for tariff revenues reflect the right to consideration from the customers in an
amount that corresponds directly with the value transferred to the customer for the performance completed to
date.
(cid:120)(cid:3) Other Utility Revenues – Other utility revenues represent revenues earned primarily from: antenna revenues,
which represents fees received from telecommunication operators that have put cellular antennas on our water
towers; operation and maintenance and billing contracts, which represent fees earned from municipalities for our
operation of their water or wastewater treatment services or performing billing services; and fees earned from
developers for accessing our water mains, miscellaneous service revenue from gas distribution operations, gas
processing and handling revenue, sales of natural gas at market-based rates and contracted fixed prices, sales of
gas purchased from third parties, and other gas marketing activities. The performance obligations vary for these
revenues, but all are primarily recognized over time as the service is delivered.
(cid:120)(cid:3) Alternative Revenue Program:
(cid:82)(cid:3) Water / Wastewater Revenues – These revenues represent the difference between the actual billed utility
volumetric water and wastewater revenues for Aqua Illinois and the revenues set in the last Aqua Illinois
rate case. In accordance with the Illinois Commerce Commission, we recognize revenues based on the
target amount established in the last rate case, and then record either a regulatory asset or liability based
on the cumulative annual difference between the target and actual amounts billed, which results in either a
payment from customers or a refund due to customers. The cumulative annual difference is either
refunded to customers or collected from customers over a nine-month period.
(cid:82)(cid:3) Natural Gas Revenues – These revenues represent the weather-normalization adjustment (“WNA”)
mechanism in place for our natural gas customers served in Kentucky. The WNA serves to minimize the
effects of weather on the Company’s results for its residential and small commercial natural gas
customers. This regulatory mechanism adjusts revenues earned for the variance between actual and
normal weather and can have either positive (warmer than normal) or negative (colder than normal)
effects on revenues. 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. (cid:3)
These revenue programs represent a contract between the utility and its regulators, not customers, and therefore
are not within the scope of the FASB’s accounting guidance for recognizing revenue from contracts with
customers.
(cid:23)(cid:20)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
(cid:120)(cid:3) Other and Eliminations – Other and eliminations consist of market-based revenues, which are earned through our
non-regulated natural gas operations and Aqua Resources, and intercompany activities for revenue billed between
our subsidiaries. Our non-regulated natural gas operations consist of utility service line protection solutions and
repair services for households and the operation of gas marketing and production entities. Revenue is recognized
and the performance obligation is satisfied over time as the service is delivered. Aqua Resources earned revenues
and continues to earn revenue through third-party water and sewer service line protection and repair services. For
the service line protection business, the performance obligations are allowing the use of our logo to a third-party
water and sewer service line repair provider. Revenues are primarily recognized over time as service is delivered. (cid:3)
Cash and Cash Equivalents(cid:3)(cid:326)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:79)(cid:92)(cid:3)(cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)(cid:80)(cid:68)(cid:87)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:85)(cid:72)(cid:72)(cid:3)
months or less, which are not restricted for construction activity, to be cash equivalents.
The Company had a book overdraft, which represents transactions that have not cleared the bank accounts at the end of
the period, for specific disbursement cash accounts of $13,358 and $28,694 at December 31, 2023 and 2022, respectively.
The Company transfers cash on an as-needed basis to fund these items as they clear the bank in subsequent periods. The
balance of the book overdraft is reported as book overdraft and the change in the book overdraft balance is reported as
cash flows from financing activities, due to our ability to fund the overdraft with the Company’s credit facility.
Accounts Receivable(cid:3)(cid:326)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:89)(cid:82)(cid:76)(cid:70)(cid:72)(cid:71)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:88)(cid:81)(cid:69)(cid:76)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)
revenues. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in
our existing accounts receivable and is determined based on lifetime expected credit losses and the aging of account
balances. The Company reviews the allowance for doubtful accounts quarterly. Account balances are written off against
the allowance when it is probable the receivable will not be recovered. When utility customers request extended payment
terms, credit is extended based on regulatory guidelines, and collateral is not required.
Inventories – Materials and Supplies(cid:3)– Inventories are stated at cost. Cost is determined using the first-in, first-out
method.
Inventory – Gas Stored – The Company accounts for gas in storage inventory using the weighted average cost of gas
method.
Assets Held for Sale (cid:326) When the Company makes a decision to sell an asset or to stop some part of its business, the
Company assesses if such assets should be classified as an asset held for sale. Assets held for sale are measured at the
lower of their carrying amount or fair value less cost to sell. For long-lived assets or disposal groups that are classified as
held for sale but do not meet the criteria for discontinued operations, the assets and liabilities are presented separately on
the consolidated balance sheet of the initial period in which it is classified as held for sale. The major classes of assets
and liabilities classified as held for sale are disclosed in the notes to the consolidated financial statements. See “Note 3 –
Assets Held for Sale and Dispositions”.
(cid:23)(cid:21)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
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(cid:53)(cid:72)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:87)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)
(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:21)
(cid:42)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)
(cid:53)(cid:72)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:87)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)
(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:22)
(cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
Natural
(cid:42)(cid:68)(cid:86)
(cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
(cid:58)(cid:68)(cid:87)(cid:72)(cid:85)
(cid:24)(cid:27)(cid:15)(cid:24)(cid:21)(cid:26) $ (cid:21)(cid:15)(cid:21)(cid:26)(cid:26)(cid:15)(cid:23)(cid:23)(cid:26) $
$
-
(cid:11)(cid:21)(cid:22)(cid:12)
(cid:24)(cid:27)(cid:15)(cid:24)(cid:19)(cid:23)
-
(54)
-
-
(cid:21)(cid:15)(cid:21)(cid:26)(cid:26)(cid:15)(cid:23)(cid:23)(cid:26)
-
-
$
(cid:24)(cid:27)(cid:15)(cid:23)(cid:24)(cid:19) $ (cid:21)(cid:15)(cid:21)(cid:26)(cid:26)(cid:15)(cid:23)(cid:23)(cid:26) $
(cid:23)(cid:22)
(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)
Consolidated
(cid:23)(cid:15)(cid:27)(cid:23)(cid:20) $ (cid:21)(cid:15)(cid:22)(cid:23)(cid:19)(cid:15)(cid:27)(cid:20)(cid:24)
-
(cid:11)(cid:21)(cid:22)(cid:12)
(cid:21)(cid:15)(cid:22)(cid:23)(cid:19)(cid:15)(cid:26)(cid:28)(cid:21)
-
(54)
(cid:21)(cid:15)(cid:22)(cid:23)(cid:19)(cid:15)(cid:26)(cid:22)(cid:27)
-
-
(cid:23)(cid:15)(cid:27)(cid:23)(cid:20)
-
-
(cid:23)(cid:15)(cid:27)(cid:23)(cid:20) $
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The reclassification of goodwill to utility plant acquisition adjustment results from either a regulatory order or a
mechanism approved by the applicable utility commission. A regulatory order may provide for the one-time transfer of
certain acquired goodwill. The mechanism provides for the transfer over time, and the recovery through customer rates, of
goodwill associated with some acquisitions upon achieving specific objectives.
Intangible assets – The Company’s intangible assets consist of customer relationships for our non-regulated natural gas
operations and non-compete agreements with certain former employees of Peoples. These intangible assets are amortized
on a straight-line basis over their estimated useful lives of fifteen years for the customer relationships and five years for
the non-compete agreements.
Derivative Instruments – The Company’s natural gas commodity price risk, driven mainly by price fluctuations of natural
gas, is mitigated by its purchased-gas cost adjustment mechanisms. The Company also uses derivative instruments to
economically hedge the cost of anticipated natural gas purchases during the winter heating months that seeks to offset the
risk to the Company’s utility customers from upward market price volatility. These strategies include requirements
contracts, spot purchase contracts and underground storage to meet regulated customers’ natural gas requirements that
may have fixed or variable pricing. The variable price contracts qualify as derivative instruments; however, because the
contract price is the prevailing price at the future transaction date the contract has no determinable fair value. The fixed
price contracts and firm commitments to purchase a fixed quantity of gas in the future qualify for the normal purchases
and normal sales exception that is allowed for contracts that are probable of delivery in the normal course of business and,
as such, are accounted for under the accrual basis and are not recorded at fair value in the Company’s consolidated
financial statements.
Deferred Charges and Other Assets (cid:326)(cid:3)(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:72)(cid:3)
employees in the future who participate in the Company’s deferred compensation plan, and prepaid pension and other
post-retirement benefit plans assets, which amounted to $26,442 and $43,025 as of December 31, 2023; and $24,962 and
$43,827 as of December 31, 2022, respectively. The assets of the deferred compensation plan are invested in mutual
funds which are carried on the consolidated balance sheet at fair market value, and changes in fair value are included in
other expense (income), refer to Note 12 – Fair Value of Financial Instruments for further details. Refer to Note 16 –
Pension Plans and Other Post-Retirement Benefit Plans for further information on the prepaid pension and other post-
retirement benefit plan assets.
As of December 31, 2022, deferred charges and other assets also included the non-current portion of the Company’s
interest in three non-utility local microgrid and distributed energy projects amounting to $63,204. In October 2023, the
Company entered to an agreement to sell their interests in these projects for $165,000. As of December 31, 2023, the
balances associated with these projects of $63,182 are included in prepayments and other current assets in the
consolidated balance sheets. In January 2024, the sale was completed. Refer to Note 3 – Assets Held for Sale and
Dispositions for further details.
Income Taxes(cid:3)(cid:326)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:76)(cid:87)(cid:72)(cid:80)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:71)(cid:76)(cid:73)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
tax reporting purposes. Deferred income taxes are provided on specific temporary differences between the tax basis of the
assets and liabilities, and the amounts at which they are carried in the consolidated financial statements. The income tax
effect of temporary differences not currently included in rates is recorded as deferred taxes with an offsetting regulatory
asset or liability. These deferred income taxes are based on the enacted tax rates expected to be in effect when such
temporary differences are projected to reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount more likely than not to be realized. Investment tax credits are deferred and amortized over the
estimated useful lives of the related properties. Judgment is required in evaluating the Company’s Federal and state tax
positions. Despite management’s belief that the Company’s tax return positions are fully supportable, the Company
establishes reserves when it believes that its tax positions are likely to be challenged and it may not fully prevail in these
challenges. The Company’s provision for income taxes includes interest, penalties and reserves for uncertain tax
positions.
(cid:23)(cid:23)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Customers’ Advances for Construction and Contributions in Aid of Construction (cid:326)(cid:3)(cid:56)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:86)(cid:15)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)
(cid:82)(cid:85)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:76)(cid:80)(cid:69)(cid:88)(cid:85)(cid:86)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)
(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:15)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:69)(cid:92)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:85)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:71)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)
service to their properties. The value of these contributions is recorded as customers’ advances for construction. Over
(cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:89)(cid:68)(cid:85)(cid:92)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)
(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)
(cid:87)(cid:72)(cid:85)(cid:85)(cid:76)(cid:87)(cid:82)(cid:85)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:80)(cid:68)(cid:78)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:68)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)
(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:86)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:68)(cid:78)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:90)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:17)(cid:3)(cid:3)(cid:36)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)
(cid:85)(cid:72)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:76)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)
business. Contributions in aid of construction include direct non-refundable contributions and the portion of customers'
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(cid:68)(cid:76)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:16)(cid:80)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:15)(cid:3)(cid:81)(cid:82)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:17)(cid:3)
Stock-Based Compensation(cid:3)(cid:326)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:16)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)
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(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:85)(cid:68)(cid:71)(cid:72)(cid:71)(cid:3)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:72)(cid:87)(cid:75)(cid:82)(cid:71)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:86)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:17)(cid:3)(cid:3)(cid:3)
Fair Value Measurements(cid:3)(cid:177)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:36)(cid:54)(cid:37)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:74)(cid:88)(cid:76)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
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(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:11)(cid:179)(cid:49)(cid:36)(cid:57)(cid:180)(cid:12)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:71)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:75)(cid:76)(cid:72)(cid:85)(cid:68)(cid:85)(cid:70)(cid:75)(cid:92)(cid:17)(cid:3)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:81)(cid:82)(cid:3)
(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:76)(cid:84)(cid:88)(cid:72)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:82)(cid:85)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:72)(cid:85)(cid:86)(cid:3)(cid:69)(cid:72)(cid:87)(cid:90)(cid:72)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)
(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:75)(cid:76)(cid:72)(cid:85)(cid:68)(cid:85)(cid:70)(cid:75)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:22)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:21)(cid:21)(cid:17)(cid:3)
(cid:23)(cid:24)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
(cid:53)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:51)(cid:85)(cid:82)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:326)(cid:3)(cid:3)
Pronouncements to be adopted upon the effective date:
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax
Disclosures". The ASU enhances the transparency and decision usefulness of income tax disclosures and is effective for
annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is
currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07 Segment Reporting - Improving Reportable Segment Disclosures
(Topic 280). The update is intended to improve reportable segment disclosure requirements, primarily through enhanced
disclosures about significant expenses. The ASU requires disclosures to include significant segment expenses that are
regularly provided to the chief operating decision maker (CODM), a description of other segment items by reportable
segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate
resources. The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods.
The update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024, with early adoption permitted and requires retrospective application to all prior
periods presented in the financial statements. The Company is currently assessing the timing and impact of adopting the
updated provisions.
Pronouncements adopted during the fiscal year:
In October 2021, the FASB issued accounting guidance on accounting for acquired revenue contracts with customers in a
business combination. The guidance specifies for all acquired revenue contracts, regardless of their timing of payment, the
circumstances in which the acquirer should recognize contract assets and contract liabilities that are acquired in a business
combination, as well as how to measure those contract assets and contract liabilities. The updated accounting guidance is
effective for fiscal years beginning after December 15, 2022 with early adoption permitted. The Company adopted this
guidance effective January 1, 2023, and will apply it prospectively to business combinations occurring on or after that
date.(cid:3)
Recently issued accounting standards or pronouncements not disclosed above have been excluded as they are not relevant
to the Company(cid:17)(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)
Note 2 – Acquisitions
Water and Wastewater Utility Acquisitions – Pending Completion
In December 2023, the Company entered into a purchase agreement to acquire North Versailles wastewater assets in
North Versailles Township, Pennsylvania which serves approximately 4,400 customers for between $25,000 and $30,000.
In September 2023, the Company entered into a purchase agreement to acquire Greenville Municipal Water Authority’s
water system in Greenville, Pennsylvania which serves approximately 3,000 customers for $18,000.
In June 2023, the Company entered into a purchase agreement to acquire Westfield HOA wastewater assets, which serves
approximately 200 customers within Westfield Homeowners Subdivision in Glenview, Illinois for $50.
In April 2023, the Company entered into a purchase agreement to acquire Greenville Sanitary Authority’s wastewater
utility assets, which serves approximately 2,300 customers in Greenville, Pennsylvania for $18,000.
(cid:23)(cid:25)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
In October 2021, the Company entered into a purchase agreement to acquire the wastewater utility assets of the City of
Beaver Falls, Pennsylvania which consists of approximately 7,600 customers for $41,250.
The purchase price for each of these pending acquisitions is subject to certain adjustments at closing, and is subject to
regulatory approval, including the final determination of the fair value of the rate base acquired. We plan to finance the
purchase price of these acquisitions by utilizing our revolving credit facility until permanent debt and common equity are
secured. These pending acquisitions are expected to close in 2024 or 2025. Closing for our utility acquisitions are subject
to the timing of the respective regulatory approval processes.
DELCORA Purchase Agreement
In September 2019, the Company entered into a purchase agreement to acquire the wastewater utility system assets of the
Delaware County Regional Water Quality Control Authority (“DELCORA”), which consists of approximately 16,000
customers, or the equivalent of 198,000 retail customers, in 42 municipalities in Southeast Pennsylvania for $276,500.
There are several legal proceedings involving the Company as a result of the purchase agreement:
(cid:120)(cid:3)
In 2020, Delaware County, Pennsylvania (the “County”) filed a lawsuit alleging that DELCORA did not have the
legal authority to establish and fund a customer trust with the net proceeds of the transaction (the “County
Lawsuit”). In 2020, the judge in the Delaware County Court lawsuit issued an order that (1) the County cannot
interfere with the purchase agreement between DELCORA and the Company; (2) the County cannot terminate
DELCORA prior to the closing of the transaction; and (3) the establishment of the customer trust was valid. The
County appealed this decision to the Commonwealth Court of Pennsylvania. (cid:3)On March 3, 2022, the
Commonwealth Court issued a decision finding that the County can dissolve DELCORA if it so chooses, but the
purchase agreement must be upheld regardless of who is operating the system. The case was remanded back to the
trial court for the entry of an order consistent with the Commonwealth Court’s opinion and the order was issued in
September 2022 (“Remand Order”). Since then, the County has challenged the Remand Order that has resulted in
the Remand Order being on appeal to the Commonwealth Court. The Commonwealth Court has scheduled oral
argument on this appeal for April 2024.
(cid:120)(cid:3) On January 25, 2023, DELCORA filed in the Delaware Court of Common Pleas a complaint for Declaratory
Judgment against the Company and the County seeking resolution of whether the County Ordinance dissolving
DELCORA is a final action prohibiting DELCORA from carrying out the material transaction of the Asset
Purchase Agreement and, in the event that DELCORA retains the ability to close the transaction, whether
DELCORA is permitted to exist as a trust (the “DELCORA Complaint”). The Company filed preliminary
objections to the DELCORA complaint, which were scheduled for a hearing on October 12, 2023. However,
prior to the scheduled hearing, the Court notified the parties that the hearing was canceled and would be re-listed
after the parties receive the benefit of the Commonwealth Court’s decision on the appeal addressed above.
The administrative law judges (“ALJ”) in the regulatory approval process (the “PUC Process”) recommended that the
Company’s application to acquire DELCORA be denied, and subsequently, the Company provided exceptions to the
recommended decision. On March 30, 2021, the Pennsylvania Public Utility Commission (“PUC”) ruled that the case be
remanded back to the ALJ and vacated the original administrative law judges’ recommended decision (“2021 Order”).
This 2021 Order was also appealed to the Commonwealth Court by the County on April 29, 2021. A decision was issued
by the Commonwealth Court on September 12, 2022, which dismissed the appeal of the County.
(cid:120)(cid:3) After the PUC issued the 2021 Order, on April 16, 2021, the ALJ issued an order staying the proceeding until the
County Lawsuit is final and unappealable. On March 25, 2022, the Company sent a letter notifying the PUC of
the March 3, 2022, Commonwealth Court decision (that originated in Delaware County Court of Common Pleas)
and requested that the PUC move forward with processing the application. On July 14, 2022, the Commission
moved to lift the stay imposed by the ALJ, and required the ALJ to establish a schedule on remand for the
proceeding. The ALJ established a procedural schedule for the remand proceeding, which was subsequently
stayed.
(cid:23)(cid:26)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
(cid:120)(cid:3) On August 17, 2022, the Receiver for the City of Chester filed suit in Delaware County Common Pleas Court
against DELCORA premised upon the claimed reversionary interest of the City of Chester in some of
DELCORA’s assets. The Company intervened in that matter and filed preliminary objections. Following a
hearing on the Company’s preliminary objections, the Receiver for the City of Chester discontinued the case
without prejudice.(cid:3)
(cid:120)(cid:3) On January 26, 2023, several parties involved in the PUC case filed a joint motion for stay based on the
DELCORA Complaint and referenced the City of Chester’s bankruptcy filing in which the City of Chester has
asserted reversionary contract interests regarding some of DELCORA’s wastewater assets. On February 6, 2023,
the ALJ stayed the PUC Process.
(cid:120)(cid:3) On May 23, 2023, the United States Bankruptcy Court issued an order in the City of Chester’s bankruptcy filing
staying the PUC Process until relief from the stay is granted by the Bankruptcy Court. The Company appealed the
Bankruptcy Court stay order to the United States District Court for the Eastern District of Pennsylvania and is
awaiting the Court decision whether oral argument will be scheduled or a decision rendered based solely on the
briefing.(cid:3)
(cid:120)(cid:3) On June 16, 2023, the Company filed a Complaint against DELCORA in the Delaware County Court of Common
Pleas requesting a declaratory judgment and injunctive relief regarding breach of the Asset Purchase Agreement
in acting outside the ordinary course of business by attempting to enter into a new agreement with Philadelphia
Water Department (“PWD”) for the treatment of wastewater without the Company’s consent. DELCORA filed an
answer, new matter and counterclaim against the Company, alleging that the Company has tortiously interfered
with DELCORA’s contract with PWD. The Company filed preliminary objections to the counterclaim, and
DELCORA filed an amended counterclaim. The Company filed preliminary objections to the amended
counterclaim, and on October 9, 2023, DELCORA filed a second amended counterclaim, to which the Company
filed preliminary objections. The preliminary objections remain pending before the Court.(cid:3)
The purchase price for this pending acquisition is subject to certain adjustments at closing, and is subject to regulatory
approval, including the final determination of the fair value of the rate base acquired. We plan to finance the purchase
price of this acquisition with a mix of equity and debt financing, utilizing our revolving credit facility until permanent
debt is secured. Closing of our acquisition of DELCORA is subject to the timing of the above-described regulatory
approval process and on-going litigation.
Water and Wastewater Utility Acquisitions - Completed
In July 2023, the Company completed the following water utility asset acquisitions: Shenandoah Borough, Pennsylvania,
which serves approximately 2,900 customers for $12,291; La Rue, an Ohio municipality, which serves approximately 300
customers for $2,253; and, Southern Oaks Water System, which serves approximately 800 customers in Texas for $3,321.
Additionally, in July 2023, the Company completed their acquisition of a portion of the water and wastewater utility
assets of the Village of Frankfort, an Illinois municipality, which serves approximately 1,500 customers for $1,424.
In June 2023, the Company acquired the wastewater utility assets of Union Rome, Ohio, which serves approximately
4,300 customers for a cash purchase price of $25,547.
In March 2023, the Company acquired the North Heidelberg Sewer Company in Berks County, Pennsylvania, which
serves approximately 300 customer connections for a cash purchase price of $136.
(cid:23)(cid:27)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
In November 2022, the Company acquired certain water utility assets of Oak Brook, Illinois, which serve 2,037 customers
for a cash purchase price of $12,500.
On July 29, 2022, the Pennsylvania Public Utility Commission issued an order (the “PUC Order”) approving the
Company’s acquisition of the municipal wastewater assets of East Whiteland Township, Chester County, Pennsylvania,
which serves 4,018 customers (the “East Whiteland Wastewater Assets”). On August 12, 2022, the Company acquired the
East Whiteland Wastewater Assets for a cash purchase price of $54,374. Subsequently on August 25, 2022, the Office of
Consumer Advocate (“OCA”) filed an appeal of the PUC Order to the Pennsylvania Commonwealth Court. On July 31,
2023, a decision was issued by the Pennsylvania Commonwealth Court, in which the Pennsylvania Commonwealth Court
agreed with the OCA and reversed the PUC order which approved the acquisition. On September 26, 2023, the
Pennsylvania Commonwealth Court denied our motion for reargument. On October 26, 2023, the Company, the
Pennsylvania Public Utility Commission, and East Whiteland Township filed an appeal to the Pennsylvania Supreme
Court. East Whiteland Township filed to Supplement its Petition for Allowance of Appeal on January 2, 2024. On
January 16, 2024, the Company, the OCA and the PUC filed Answers to East Whiteland Township’s Petition. The
Company is currently waiting to see if the Supreme Court will grant allocatur. Management believes the final resolution
of this matter is not expected to have a material adverse effect on the Company’s financial position, results of operations,
or cash flows.
In March 2022, the Company acquired the wastewater system of Lower Makefield Township, which serves 11,323
customer connections in Lower Makefield, Falls, and Middletown townships, and Yardley Borough, Bucks County,
Pennsylvania, for a cash purchase price of $53,000. The purchase price allocation for these acquisitions consisted
primarily of property, plant and equipment.
In August 2021, the Company acquired the water utility system assets of The Commons Water Supply, Inc., which serves
992 customers in Harris County, Texas, and the wastewater utility system assets of the Village of Bourbonnais, which
serves approximately 6,500 customers in Kankakee County, Illinois. The total cash purchase prices for these utility
systems were $4,000 and $32,100, respectively. The purchase price allocation for these acquisitions consisted primarily
of property, plant and equipment.
The operating revenues included in the consolidated financial statements of the Company during the period owned by the
Company for these utility systems acquired in 2023 are $3,290.
The operating revenues included in the consolidated financial statements of the Company during the period owned by the
Company for the utility systems acquired in 2022 were $18,039 in 2023 and $11,393 in 2022.
The operating revenues included in the consolidated financial statements of the Company during the period owned by the
Company for the utility systems acquired in 2021 were $7,930 in 2023, $7,421 in 2022, and $2,462 in 2021.
The pro forma effect of the utility systems acquired is not material either individually or collectively to the Company’s
results of operations.
(cid:23)(cid:28)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Note 3 – Assets Held for Sale and Dispositions
In December 2022, the Company entered into a definitive agreement with Hope Gas, Inc. for the sale of its regulated
natural gas utility assets in West Virginia, which served approximately 13,000 customers or about 2% of the Company’s
regulated natural gas customers (“Peoples Gas West Virginia”). The Peoples Gas West Virginia sale closed on October 1,
2023 for an estimated purchase price of $39,965, subject to working capital and other adjustments. The sale of Peoples
Gas West Virginia had no major effect on the Company’s operations and did not meet the requirements to be classified as
discontinued operations. The assets and liabilities of Peoples Gas West Virginia were reported as held for sale in the
accompanying consolidated balance sheet, and consist of the following as of December 31, 2022.
Inventory - gas stored
Other current assets
Regulatory assets
Current assets held for sale
Property, plant and equipment, net
Regulatory assets and other
Non-current assets held for sale
Current liabilities related to assets held for sale
Regulatory liabilities
Other long-term liabilities
Non-current liabilities related to assets held for sale
$
(cid:3)
$
(cid:3)
$
$
$
2,807
3,284
5,076
11,167
30,267
1,857
32,124
3,263
649
325
974
In October 2023, the Company entered into an agreement to sell its interest in three non-utility local microgrid and
distributed energy projects for $165,000. As of December 31, 2023, balances associated with these projects are included
in prepayments and other current assets in the consolidated balance sheets totaling $63,182. As of December 31, 2022,
balances associated with these projects are included in deferred charges and other assets, and prepayments and other
current assets, amounting to $63,204 and $2,517, respectively. The sale was subject to various closing conditions and
regulatory approvals and was completed in January 2024. The sale of these projects had no major effect on the
Company’s operations and did not meet the requirements to be classified as discontinued operations.
(cid:24)(cid:19)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Note 4 – Property, Plant and Equipment
December 31,
2023
2022
Approximate
Range of
Useful Lives
Weighted
Average
Useful Life
Regulated Water segment:
Utility plant and equipment
$
Mains and accessories
Services, hydrants, treatment plants and reservoirs
Operations structures and water tanks
Miscellaneous pumping and purification equipment
Meters, transportation and other operating equipment
Land and other non-depreciable assets
Utility plant and equipment - regulated water segment
Utility construction work in progress
Net utility plant acquisition adjustment
Non-utility plant and equipment
Property, Plant and Equipment - Regulated Water segment
413,147
4,523,718 $ 4,213,197 26-90 years
3,140,497 2,910,496 5-89 years
388,596 15-80 years
1,237,967 1,131,975 7-76 years
1,104,643 1,045,053 5-84 years
133,618
10,563,724 9,822,935
366,777
143,752
-
-
-
315,973
(6,444)
20,019
(6,076) 10-53 years
20,561 17-64 years
10,893,272 10,204,197
Regulated Natural Gas segment:
Natural gas transmission
Natural gas storage
Natural gas gathering and processing
Natural gas distribution
Meters, transportation and other operating equipment
Land and other non-depreciable assets
Utility plant and equipment - Regulated Natural Gas
segment
Utility construction work-in-progress
Property, plant and equipment - Regulated Natural Gas
segment
Total property, plant and equipment
Note 5 – Accounts Receivable
Billed utility revenue
Other
Less allowance for doubtful accounts
Net accounts receivable
73 years
56 years
48 years
41 years
28 years
-
-
-
22 years
58 years
67 years
44 years
59 years
63 years
23 years
-
(cid:3)
-
429,465
62,157
147,700
398,658 5-93 years
61,639 5-85 years
144,337 5-77 years
2,733,054 2,206,434 25-78 years
568,305 5-61 years
613,653
4,139
4,187
-
(cid:3)
-
3,990,168 3,383,560
149,630
93,581
4,083,749 3,533,190
$ 14,977,021 $ 13,737,387
December 31,
2023
2022
$
199,986
4,887
204,873
60,573
144,300 $
265,504
4,801
270,305
63,981
206,324
$
$
(cid:24)(cid:20)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
As of December 31, 2023, the Company’s utility customers are located principally in the following states: 66% in
Pennsylvania, 9% in Ohio, 6% in North Carolina, 5% in Texas, and 5% in Illinois. No single customer accounted for
more than one percent of the Company's utility operating revenues during the years ended December 31, 2023, 2022, and
2021. The following table summarizes the changes in the Company’s allowance for doubtful accounts:
Balance at January 1,
Amounts charged to expense
Accounts written off
Recoveries of accounts written off and other (a)
Balance at December 31,
2023
2022
2021
$
$
63,981 $
23,209
(27,759)
1,142
60,573 $
58,073 $
27,631
(22,507)
784
63,981 $
40,099
27,336
(19,731)
10,369
58,073
(a)Recoveries of accounts written off and other in 2021 includes measurement period adjustments of $12,851 from the
Peoples Gas Acquisition before the measurement period ended.
Note 6 – Regulatory Assets and Liabilities
Regulatory assets represent costs that are probable to be fully recovered from customers in future rates while regulatory
liabilities represent amounts that are expected to be refunded to customers in future rates or amounts recovered from
customers in advance of incurring the costs. Except for income taxes and utility plant retirement costs, regulatory assets
and regulatory liabilities are excluded from the Company’s rate base and do not earn a return. The components of
regulatory assets and regulatory liabilities are as follows:
December 31, 2023
December 31, 2022
Income taxes
Purchased gas costs
Utility plant retirement costs
Post-retirement benefits
Accrued vacation
Water tank painting
Fair value adjustment of long-term debt assumed in acquisition
Debt refinancing
Rate case filing expenses and other
Regulatory
Assets
1,553,111 $
21,019
38,148
80,000
1,877
17,044
38,482
12,674
33,617
1,795,972 $
$
$
Regulatory
Liabilities
Regulatory
Assets
599,088
29,807
68,815
153,816
-
-
-
-
654
852,180
$
$
1,164,294 $
15,435
36,440
51,810
3,231
10,385
49,954
13,906
16,570
1,362,025 $
Regulatory
Liabilities
571,110
28,955
64,212
142,390
-
-
-
-
7,363
814,030
Items giving rise to deferred state income taxes, as well as a portion of deferred Federal income taxes related to specific
differences between tax and book depreciation expense, are recognized in the rate setting process on a cash basis or as a
reduction in current income tax expense and will be recovered as they reverse. Amounts include differences that arise
between specific utility asset improvement costs capitalized for book and deducted as an expense for tax purposes.
Additionally, the recording of AFUDC for equity funds results in the recognition of a regulatory asset for income taxes,
which represents amounts due related to the revenue requirement. The Company records regulatory assets when a
valuation allowance is recorded on deferred tax assets, associated with state NOLs that the Company does not believe are
more likely than not to be realized, and are expected to be fully recovered from customers in future rates. Regulatory
liabilities are refundable in future rate filings based on the difference between the amount of the income tax benefits that
were incorporated into the Company’s cost of service in its latest rate case as compared to the actual income tax benefits
recognized.
A portion of the regulatory liability for income taxes is related to Aqua Pennsylvania’s income tax accounting change for
the tax benefits realized on the Company’s 2012 tax return, which have not yet reduced current income tax expense due to
a rate order requiring a ten year amortization period which began in 2013. Beginning in 2013, the Company amortized
(cid:24)(cid:21)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
$38,000, annually, of its deferred income tax benefits, which reduced current income tax expense. In 2022, the
amortization period for this regulatory liability was extended for an additional three years. A portion of the income taxes
regulatory liability is also related to Peoples Natural Gas’ income tax accounting change for the tax benefits expected to
be realized for the periods prior to adoption on March 16, 2020. The Company recorded a regulatory liability for this
catch-up adjustment in the amount of $160,655 in 2020, and it remained on the consolidated balance sheet as of December
31, 2020. In May 2021, the Company received a regulatory order directing the Company to refund the catch-up
adjustment to its utility customers over a five-year period, which was initiated by the Company in August 2021. In 2022,
the Company made a similar change for its Peoples Gas and Aqua New Jersey subsidiaries, resulting in the recognition of
a regulatory liability for each of these subsidiaries for the tax benefits prior to the year of adoption.
The regulatory asset or liability for purchased gas costs reflects the differences between actual purchased gas costs and the
levels of recovery for these costs in current rates. The unrecovered costs are recovered and the over-recovered costs are
refunded in future periods, typically within a year, through quarterly and annual filings with the applicable state regulatory
agency.
The regulatory asset for utility plant retirement costs, including cost of removal, represents costs already incurred that are
expected to be recovered in future rates over a five year recovery period. The regulatory liability for utility plant
retirement costs represents amounts recovered through rates during the life of the associated asset and before the costs are
incurred.
The regulatory asset for accrued vacation represents costs that would otherwise be charged to operations and maintenance
expense for vacation that is earned by employees, which is recovered as a cost of service.
The regulatory asset for post-retirement benefits, which includes pension and other post-retirement benefits, primarily
reflects a regulatory asset that has been recorded for the costs that would otherwise be charged to stockholders’ equity for
the underfunded status of the Company’s pension and other post-retirement benefit plans. The Company also has a
regulatory asset related to post-retirement benefits costs that represent costs already incurred which are now being or
anticipated to be recovered in rates over a period ranging from approximately 10 to 37 years. The regulatory liability for
post-retirement benefits represents costs recovered in rates in excess of post-retirement benefits expense.
Expenses associated with water tank painting are deferred and amortized over a period of time as approved in the
regulatory process. Water tank painting costs are generally being amortized over a period ranging from 10 to 20 years.
The regulatory liability for water tank painting costs represents amounts recovered through rates and before the costs are
incurred.
The Company recorded a fair value adjustment for fixed rate, long-term debt assumed in acquisitions that matures in
various years ranging from 2024 to 2033. The regulatory asset or liability results from the rate setting process continuing
to recognize the historical interest cost of the assumed debt.
The regulatory asset for debt refinancing represents a portion of a make whole payment of $25,237 incurred in 2019 for
the Company’s redemption of $313,500 of the Company’s outstanding notes that had maturities ranging from 2019-2037
and interest rates ranging from 3.57-5.83%. The Company deferred a portion of the make whole payment as it represents
an amount by which we expect to receive prospective rate recovery.
The regulatory asset related to rate case filing expenses and other represents the costs associated with filing for rate
increases that are deferred and amortized over periods that generally range from one year to five years, and costs incurred
by the Company for which it has received or expects to receive rate recovery. Other regulatory assets also include the
financial impacts of customer-owned lead service line replacement costs and regulatory balancing accounts. Regulatory
balancing accounts represent the difference between revenues recognized and authorized revenue requirements until they
are recovered from customers, and low-income customer assistance programs.
(cid:24)(cid:22)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The regulatory asset related to the costs incurred for information technology software projects and water main cleaning
and relining projects are described in Note 1 – Summary of Significant Accounting Policies – Property, Plant and
Equipment and Depreciation.
Note 7 – Income Taxes
Income tax benefit for the years ended December 31, is comprised of the following:
Current:
Federal
State
Deferred:
Federal
State
Total income tax benefit
Years Ended December 31,
2023
2022
2021
$
$
1,913 $
11,487
13,400
(103,617)
23,772
(79,845)
(66,445) $
- $
8,716
8,716
(8,258)
(14,787)
(23,045)
(14,329) $
(5,132)
4,034
(1,098)
3,036
(11,550)
(8,514)
(9,612)
The statutory Federal tax rate is 21% for 2023, 2022, and 2021. For states with a corporate net income tax, the state
corporate net income tax rates range from 2.5% to 9.99% for all years presented. The Company’s effective income tax
rate for 2023, 2022, and 2021 was (15.4)%, (3.2)%, and (2.3)%, respectively. The Company remains subject to
examination by federal and state tax authorities for the 2020 through 2023 tax years.
The differences between income taxes expected at the federal statutory rate and the reported income tax benefit are
described below:
Computed Federal tax expense at statutory rate
Decrease in Federal tax expense related to the flow through benefit of repair
deductions
Amortization of deferred benefit from repair method changes
State income taxes, net of Federal tax benefit
Amortization of excess deferred income taxes
Impact of acquisitions and reorganizations
Net change in unrecognized tax benefit
Valuation allowance for deferred tax assets
Other, net
Actual income tax benefit
Years Ended December 31,
2022
2023
90,674 $ 94,691 $ 88,620
2021
$
(117,370)
(18,454)
(15,115)
(8,324)
-
(4,796)
8,148
(1,208)
(58,929)
(72,302)
(15,155)
(21,012)
(4,132)
(3,972)
(11,715)
(8,425)
(4,632)
-
2,270
718
-
-
(5,939)
(4,027)
(66,445) $ (14,329) $ (9,612)
$
A valuation allowance for state deferred tax assets in the amount of $10,969 is included in state income taxes, net of
federal tax benefit above.
Certain prior year amounts have been reclassified for consistency with the current year presentation.
(cid:24)(cid:23)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
In 2012, Aqua Pennsylvania changed its tax method of accounting for qualifying utility system repairs, which provides for
a tax deduction for qualifying utility asset improvement costs that were previously being capitalized and depreciated for
book and tax purposes. In compliance with a rate order issued by the Pennsylvania Public Utility Commission, the tax
deduction is accounted for using a flow-through method of accounting for income tax benefits, which results in a
reduction in current income tax expense through the recognition of income tax benefits due to the income tax accounting
method change.
In 2019, the Pennsylvania Public Utility Commission issued a rate order to Aqua Pennsylvania and commencing in 2020,
the base rates were designed to include annual tax benefits for qualifying utility system improvement costs equal to a
deduction of $158,865, subject to a $3,000 collar either above or below this target amount. In May 2022, Aqua
Pennsylvania received a rate order that adjusted this target to $159,060 and revised the collar amount to $4,000, beginning
with the 2022 fiscal year. To the extent actual tax benefits are outside this range, tax benefits will either be deferred or
accrued, and settled in the next rate filing.
In March 2020 and June 2022, the Company filed applications for automatic tax accounting method changes for certain
qualifying infrastructure investments at its Peoples Natural Gas and Peoples Gas Company subsidiaries, respectively.
These method changes result in tax deductions for qualifying utility asset improvement costs that were formerly
capitalized for tax purposes. The Company uses the flow-through method to account for these timing differences.
For Peoples Natural Gas, the Company calculated the income tax benefits for qualifying capital expenditures made prior
to the date of its acquisition on March 16, 2020 (“catch-up adjustment”) and recognized a regulatory liability of $160,655
for these income tax benefits. On May 6, 2021, the Pennsylvania Public Utility Commission approved a settlement order
which stipulates, among other points, that the catch-up adjustment be provided by a surcredit to utility customers over a
five-year period beginning August 2021, and the Company can continue to use flow-through accounting for the current
tax repair benefit until its next base rate case. For each year in 2023 and 2022, there was a $22,848 reduction to income
tax expense to reflect the benefit to Peoples Natural Gas customers through the surcredit. For Peoples Gas Company, the
Company calculated the catch-up adjustment from periods prior to the 2021 tax year and recognized a regulatory liability
of $13,808 for these income tax benefits.
On its 2022 tax return, both the Peoples Natural Gas and Peoples Gas Divisions filed for accounting method changes to
deduct costs incurred for mandatory relocations. The Company calculated the catch-up adjustment from periods prior to
the 2022 tax year and recognized a regulatory liability of $14,251 for their income tax benefits. In addition, the Peoples
Natural Gas and Peoples Gas Divisions intend to file an accounting method change on its 2023 tax return to adopt the
Internal Revenue Service Revenue Procedure 2023-15, a natural gas safe harbor that was issued in April 2023 to
determine the amount of tax-deductible repairs. In the fourth quarter, the Company updated its calculation of the catch-up
adjustment that should be returned to customers for periods prior to March 16, 2020 for the Peoples Natural Gas Division,
and periods prior to the 2021 tax year for the Peoples Gas Division and deferred an additional tax benefit of $25,883 and
$7,785, respectively. The Company will file an updated tax repair surcredit calculation with the Pennsylvania Public
Utility Commission to determine the treatment of these tax benefits when the final calculations of the deductions have
been determined.
The following table provides the changes in the Company’s unrecognized tax benefits:
Balance at January 1,
Impact of current year activity
Effect of Pennsylvania tax rate change
Decrease for prior year tax positions
Balance at December 31,
2023
2022
2021
$
$
18,217 $
7,219
-
(17,538)
7,898 $
20,201 $
(900)
(1,084)
-
18,217 $
19,194
1,007
-
-
20,201
(cid:24)(cid:24)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate resolution. From time to time, the Company may be assessed
interest and penalties by taxing authorities, which would be recorded as income tax expense. During the years ended
December 31, 2023, 2022, and 2021, there were expenses of $23, $118, and $409 for interest and penalties related to
uncertain tax positions. As of December 31, 2023 and 2022 the Company recognized liabilities of $144 and $620,
respectively, for interest and penalties related to its uncertain tax positions.
On its 2012 Federal tax return, filed in September 2013, Aqua Pennsylvania filed a change in accounting method to adopt
the IRS temporary tangible property regulations. This method change allowed the Company to take a current year
deduction for expenses that were previously capitalized for tax purposes. Since the filing of the 2012 tax return, the IRS
has issued final regulations. While the Company maintains the belief that the deduction taken on its tax return is
appropriate, the methodology for determining the deduction has not been agreed to by the taxing authorities. Provisions
for uncertain tax positions were recorded to reflect the possible challenge of the Company’s methodology for determining
its repair deduction as required by the FASB’s accounting guidance for income taxes. Should the taxing authority
challenge the Company’s tax treatment, and ultimately disallow a portion of the repair deduction, the Company expects
Federal net operating loss carryforwards to offset any resulting liability, and state net operating loss carryforwards will
offset a portion of any resulting liability.
The unrecognized tax benefits relate to the income tax accounting change, and the tax position is attributable to a
temporary difference. The Company does not anticipate material changes to its unrecognized tax benefits within the next
year. As a result of the regulatory treatment afforded by the income tax accounting change in Pennsylvania and despite
this position being a temporary difference, as of December 31, 2023 and 2022, $6,918 and $35,267, respectively, of these
tax benefits would have an impact on the Company’s effective income tax rate in the event the Company does sustain all,
or a portion, of its tax position.
In April 2023, the Internal Revenue Service issued Revenue Procedure 2023-15 which provides a safe harbor method of
accounting that taxpayers may use to determine whether expenses to repair, maintain, replace, or improve natural gas
transmission and distribution property must be capitalized for tax purposes. The Company evaluated the safe harbor and
intends to adopt the methodology on its 2023 tax return. In the second quarter of 2023, based on the tax legislative
guidance that was issued, the Company reevaluated the uncertain tax positions related to the Regulated Water Segment
and ultimately released a portion of its historical income tax reserves. Concurrently, the Company deferred this tax
benefit from the reserve release as a regulatory liability, as the accounting treatment is expected to be determined in the
next rate case.
(cid:24)(cid:25)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The following table provides the components of net deferred tax liability:
Deferred tax assets:
Customers' advances for construction
Costs expensed for book not deducted for tax, principally accrued expenses
Post-retirement benefits
Tax effect of regulatory liabilities for post-retirement benefits
Tax attributes and credit carryforwards
Operating lease liabilities
Other
Less valuation allowance
Deferred tax liabilities:
Utility plant, principally due to depreciation and differences in the basis of fixed assets
due to variation in tax and book accounting
Deferred taxes associated with the gross-up of revenues necessary to recover, in rates,
the effect of temporary differences
Post-retirement benefits
Operating lease right-of-use assets
Tax effect of regulatory assets for post-retirement benefits
$
December 31,
2023
2022
20,332 $
29,135
1,368
49,199
458,001
11,529
1,378
570,942
(149,486)
421,456
27,009
23,585
-
41,602
235,838
13,558
9,613
351,205
(38,940)
312,265
1,662,741
1,495,526
348,646
-
10,301
28,092
2,049,780
128,975
6,130
12,250
15,150
1,658,031
Net deferred tax liability
$
1,628,324 $
1,345,766
Certain prior year amounts have been reclassified for consistency with the current year presentation.
At December 31, 2023, the Company has cumulative Federal NOLs of $1,280,694. The Company believes the Federal
NOLs are more likely than not to be recovered and require no valuation allowance. The Company’s Federal NOLs will
begin to expire in 2032.
At December 31, 2023, the Company has a cumulative state NOL of $2,534,987, a portion of which is offset by a
valuation allowance from previous years. During the fourth quarter of 2023, the Company determined that it does not
believe a portion of its Regulated natural gas segment state NOLs are more likely than not to be realized due to its
continuous investments in qualifying infrastructure resulting in the recording of a valuation allowance of $1,381,943. The
Company recorded a regulatory asset for the portion of the valuation allowance that is expected to be fully recovered from
customers in future rates. At December 31, 2023, the Company has a cumulative state valuation allowance of $1,950,378.
The state NOL began expiring in 2023.(cid:3)(cid:3)(cid:3)
At December 31, 2023, the Company’s Federal and state NOL carryforwards are reduced by an unrecognized tax position,
on a gross basis, of $18,264 and $13,566, respectively, which results from the Company’s presentation of an unrecognized
tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amounts of
the Company’s Federal and state NOL carryforwards prior to being reduced by the unrecognized tax positions are
$1,262,430 and $2,521,421, respectively. The Company records its unrecognized tax benefit as a component of its net
deferred income tax liability.
(cid:24)(cid:26)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
At December 31, 2023, the Company has a cumulative Federal charitable contribution of $48,014, of which a valuation
allowance of $38,798 has been recorded as the Company determined it is more likely than not they will expire before they
are utilized within the carryforward period.
At December 31, 2023, the Company has a cumulative state charitable contribution of $77,263 of which a valuation
allowance of $71,354 has been recorded as the Company does not believe these state charitable contributions are more
likely than not to be realized.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law, which among other things,
implements a 15% minimum tax on book income of certain large corporations, and a 1% excise tax on net stock
repurchases after December 31, 2022. The alternative minimum tax would not be applicable in our next fiscal year
because it is based on a three-year average annual adjusted financial statement income in excess of $1,000,000. We are
continuing to assess the future impact of the provisions of the IRA on our consolidated financial statements. As a
regulated utility, taxes have been traditionally recognized by state public utility commissions as appropriate for inclusion
in establishing rates.
On July 8, 2022, Pennsylvania enacted House Bill 1342 into law, which among other things, reduces Pennsylvania’s
corporate income tax rate from 9.99% to 8.99% beginning January 1, 2023, and an additional 0.5% annually through
2031, when it reaches to 4.99%. For the year ended December 31, 2022, the Company evaluated the impacts of the tax
rate change and recorded a reduction to our deferred tax liabilities of $244,537 with a corresponding reduction primarily
to our regulatory assets.
Note 8 – Taxes Other than Income Taxes
The following table provides the components of taxes other than income taxes:
Property
Gross receipts, excise and franchise
Payroll
Regulatory assessments
Pumping fees
Other
Total taxes other than income taxes
Note 9 – Commitments and Contingencies
Commitments –
Years Ended December 31,
2023
2022
2021
$
32,790
17,985
21,628
7,451
6,405
3,949
90,208 $
33,703
16,828
21,343
6,771
7,881
3,498
90,024
$
$
33,946
15,777
21,789
6,968
5,761
2,400
86,641
$
$
The Company maintains agreements with other water purveyors for the purchase of water to supplement its water supply,
particularly during periods of peak demand. The agreements stipulate purchases of minimum quantities of water to the
year 2029. The estimated annual commitments related to such purchases through 2028 are expected to average $3,397,
and the aggregate of the years remaining approximates $1,081.
(cid:24)(cid:27)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The Company has entered into purchase obligations, in the ordinary course of business, that include agreements for water
treatment processes at some of its wells in a small number of its divisions. The 20 year term agreement provides for the
use of treatment equipment and media used in the treatment process and are subject to adjustment based on changes in the
Consumer Price Index. The future contractual cash obligations related to these agreements are as follows:
2024
2025
2026
2027
2028
Thereafter
$
1,136
$
1,151
$
1,176
$
1,203 $
1,230
$
1,733
The Company’s natural gas supply is provided by sources on the interstate pipeline system and from local western
Pennsylvania gas well production. The Company has various interstate pipeline service agreements that provide for firm
transportation capacity, firm storage capacity, and other services and include capacity reservation charges based upon the
maximum daily and annual contract quantities set forth in the agreements. Some of these agreements have minimum
volume obligations and are transacted at applicable tariff and negotiated rates to the year 2034. The estimated annual
commitments related to such purchases through 2028 are expected to average $232,760, and the aggregate of the years
remaining beyond 2028 approximates $1,355,659.
The purchased water, water treatment, and purchased gas expenses under these agreements were as follows:
Purchased water under long-term agreements
Water treatment expense under contractual agreement
Purchased natural gas under long-term agreements
Years Ended December 31,
2022
2021
2023
$
6,752 $
1,103
352,306
5,559 $
1,061
601,995
5,867
1,017
340,262
Contingencies – The Company is routinely involved in various disputes, claims, lawsuits and other regulatory and legal
matters, including both asserted and unasserted legal claims, in the ordinary course of business. The status of each such
matter, referred to herein as a loss contingency, is reviewed and assessed in accordance with applicable accounting rules
regarding the nature of the matter, the likelihood that a loss will be incurred, and the amounts involved. As of
December 31, 2023, the aggregate amount of $24,643 is accrued for loss contingencies and is reported in the Company’s
consolidated balance sheet as other accrued liabilities and other liabilities. These accruals represent management’s best
estimate of probable loss (as defined in the accounting guidance) for loss contingencies or the low end of a range of losses
if no single probable loss can be estimated. For some loss contingencies, the Company is unable to estimate the amount
of the probable loss or range of probable losses. Further, Essential Utilities has insurance coverage for certain of these
loss contingencies, and as of December 31, 2023, estimates that approximately $1,340 of the amount accrued for these
matters are probable of recovery through insurance, which amount is also reported in the Company’s consolidated balance
sheet as deferred charges and other assets, net.
During a portion of 2019, the Company initiated a do not consume advisory for some of its customers in one division
served by the Company’s Illinois subsidiary. The do not consume advisory was lifted in 2019, and, in 2022, the water
system was determined to be in compliance with the federal Lead and Copper Rule. During the third quarter of 2023, an
amount was accrued for the penalty and other fees that will be paid as a result of a conditional settlement that was reached
with the regulators. The settlement is the subject of court approval. In addition, on September 3, 2019, two individuals, on
behalf of themselves and those similarly situated, commenced an action against the Company’s Illinois subsidiary in the
State court in Will County, Illinois related to this do not consume advisory. The complaint seeks class action certification,
attorney's fees, and "damages, including, but not limited to, out of pocket damages, and discomfort, aggravation, and
annoyance” based upon the water provided by the Company’s subsidiary to a discrete service area in University Park
Illinois. The complaint contains allegations of damages as a result of supplied water that exceeded the standards
established by the federal Lead and Copper Rule. The complaint is in the discovery phase and class certification has not
been granted. The Company has an accrual for the amount of loss asserted in the complaint that we determined to be
probable and estimable of being incurred. The Company is vigorously defending against this claim. The Company
submitted a claim for the expenses incurred to its insurance carrier for potential recovery of a portion of these costs and is
(cid:24)(cid:28)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
currently in litigation with one of its carriers seeking to enforce its claims. The Company continues to assess the potential
loss contingency on this matter. While the final outcome of this claim cannot be predicted with certainty, and unfavorable
outcomes could negatively impact the Company, at this time in the opinion of management, the final resolution of this
matter is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash
flows.
Although the results of legal proceedings cannot be predicted with certainty, other than disclosed above, there are no
pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of its properties is
the subject that are material or are expected to have a material effect on the Company’s financial position, results of
operations or cash flows.
In addition to the aforementioned loss contingencies, the Company self-insures a portion of its employee medical benefit
program, and maintains stop-loss coverage to limit the exposure arising from these claims. The Company’s reserve for
these claims totaled $1,846 and $2,327 at December 31, 2023 and 2022, respectively, and represents a reserve for unpaid
claim costs, including an estimate for the cost of incurred but not reported claims.
Note 10 – Leases
The Company leases land, office facilities, office equipment, and vehicles for use in its operations, which are accounted
for as operating leases. Leases with a term of 12 months or less are not recorded on the balance sheet; rather, lease
expense is recognized over the lease term. Our leases have remaining lives of 1 to 71 years.
Some of the Company’s leases can be extended on a month-to-month basis, which allow us to terminate the lease at any
given month without penalty while others include options to extend the leases for up to 50 years. The renewal of a month-
to-month lease is at our sole discretion.
The Company accounts for lease and non-lease components of lease arrangements separately. For calculating lease
liabilities, we may deem lease terms to include options to extend or terminate the lease when it’s reasonably certain that
we will exercise that option. The Company’s lease agreements do not contain significant residual value guarantees,
restrictions or covenants.
Lease liabilities and corresponding right-of-use assets are recorded based on the present value of the lease payments over
the expected lease term, including leases with variable payments that are based on a market rate or an index and net of any
impairment. All other variable payments are expensed as incurred. Since the Company’s lease agreements do not provide
an implicit interest rate, we utilize our incremental borrowing rate to determine the discount rate used to present value the
lease payments.
On January 6, 2022, the Company entered into an amendment to an office lease that provided for the partial termination of
the Company’s obligations with respect to a portion of the leased premises of approximately 37,000 rentable square feet.
The Company paid a termination fee of $2,812, reduced its remaining lease payments by $1,753 and recognized a loss on
the partial termination of the lease of $1,801.
During the fourth quarter of 2021, the Company determined that there were impairment indicators that required the
Company to review a portion of office space that was no longer used by the Company in its operations for
impairment. Accordingly, the Company performed undiscounted cash flow analyses on the related right-of-use asset
group and determined that such right-of-use asset was impaired. This resulted in a non-cash impairment charge of $4,695,
representing the excess of the right-of-use asset over its fair value, and is included within operations and maintenance
expense in the consolidated statements of operations and comprehensive income.
(cid:25)(cid:19)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Components of lease expense were as follows:
Operating lease cost
Years Ended December 31,
2022
2021
2023
$
9,307 $
9,359 $
9,716
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Supplemental balance sheet information related to leases was as follows:
Operating leases:
Operating lease right-of-use assets
Other accrued liabilities
Operating lease liabilities
Total operating lease liabilities
Weighted average remaining lease term:
Operating leases
Weighted average discount rate:
Operating leases
$
$
$
$
Years Ended December 31,
2022
2023
9,149 $
9,270
December 31,
2023
2022
37,416 $
41,734
7,360
34,425
41,785 $
9,316
37,666
46,982
December 31,
2023
2022
10.1 years
9.7 years
4.87%
3.42%
Maturities of operating lease liabilities and a reconciliation of the operating lease liabilities reported on our consolidated
balance sheets as of December 31, 2023 are as follows:
2024
2025
2026
2027
2028
Thereafter
Total operating lease payments
Total operating lease payments
Less operating lease liabilities
Present value adjustment
Operating Leases
9,037
8,955
7,211
7,122
6,811
13,902
53,038
53,038
41,785
11,253
$
$
$
$
(cid:25)(cid:20)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Note 11 – Long-term Debt and Loans Payable
Long-term Debt – The consolidated statements of capitalization provide a summary of long-term debt as of December 31,
2023 and 2022. The supplemental indentures with respect to specific issues of the first mortgage bonds restrict the ability
of Aqua Pennsylvania and other operating subsidiaries of the Company to declare dividends, in cash or property, or
repurchase or otherwise acquire the stock of these companies. Loan agreements for Aqua Pennsylvania and other
operating subsidiaries of the Company have restrictions on minimum net assets. As of December 31, 2023, restrictions on
the net assets of the Company were $4,553,903 of the total $5,896,183 in net assets. Included in this amount were
restrictions on Aqua Pennsylvania’s net assets of $1,747,255 of their total net assets of $2,354,604. As of December 31,
2023, $2,393,249 of Aqua Pennsylvania’s retained earnings of $2,413,249 and $335,892 of the retained earnings of
$514,416 of other subsidiaries were free of these restrictions. Some supplemental indentures also prohibit Aqua
Pennsylvania and some other subsidiaries of the Company from making loans to, or purchasing the stock of, the
Company.
$
2025
2024
Sinking fund payments are required by the terms of specific issues of long-term debt. Excluding amounts due under the
Company’s revolving credit agreement, the future sinking fund payments and debt maturities of the Company’s long-term
debt are as follows:
(cid:3)
Interest Rate Range
0.00% to 0.99%
1.00% to 1.99%
2.00% to 2.99%
3.00% to 3.99%
4.00% to 4.99%
5.00% to 5.99%
6.00% to 6.99%
7.00% to 7.99%
8.00% to 8.99%
9.00% to 9.99%
179 $
769
1,304
740
1,562
202
5,000
-
-
11,800
21,556 $ 237,728 $
309 $
748
1,619
51,710
1,658
10,611
-
-
760
-
67,415 $
146 $
780
1,111
208,797
1,567
202
20,000
5,125
-
-
146 $
791
906
416
1,571
3,202
-
-
-
-
7,032 $
1,958
3,691
1,101,550
2,176,091
1,619,342
828,326
6,000
-
-
-
5,736,958
197
759
1,427
1,178
120,027
202
-
23,000
529
-
147,319
Total
$
Thereafter
2026
2027
2028
$
$
On January 8, 2024, the Company issued $500,000 of long-term debt (the “2024 Senior Notes”), less expenses of $4,610,
due in 2034 with an interest rate of 5.375%. The Company used the net proceeds from the issuance of 2024 Senior Notes
(1) to repay a portion of the borrowings under the Company’s existing five year unsecured revolving credit facility, and (2)
for general corporate purposes.
In August 2023, the Company’s subsidiary, Aqua Pennsylvania, issued $225,000 in aggregate principal amount of first
mortgage bonds. The bonds consisted of $175,000 of 5.48% first mortgage bonds due in 2053; and $50,000 of 5.56% first
mortgage bonds due in 2061. In January 2023 and October 2022, Aqua Pennsylvania issued $75,000 and $125,000 of first
mortgage bonds, due in 2043 and 2052, and with interest rates of 5.60% and 4.50%, respectively. The proceeds from these
bonds were used to repay existing indebtedness and for general corporate purposes.
On May 20, 2022, the Company issued $500,000 of long-term debt (the “Senior Notes”), less expenses of $5,815, due in
2052 with an interest rate of 5.30%. The Company used the net proceeds from the issuance of Senior Notes (1) to repay
$49,700 of borrowings under Aqua Pennsylvania’s 364-day revolving credit facility and $410,000 of borrowings under the
Company’s existing five year unsecured revolving credit facility, and (2) for general corporate purposes.
The weighted average cost of long-term debt at December 31, 2023 and 2022 was 4.14% and 3.94%, respectively. The
weighted average cost of fixed rate long-term debt at December 31, 2023 and 2022 was 3.86% and 3.78%, respectively.(cid:3)
(cid:25)(cid:21)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
On December 14, 2022, the Company entered into a five year $1,000,000 unsecured revolving credit facility, which
replaced the Company’s prior five year $1,000,000 unsecured revolving credit facility. The Company’s new unsecured
revolving credit facility was used to repay all indebtedness and fees under our prior unsecured revolving credit facility,
and for other general corporate purposes. The facility includes a $100,000 sublimit for daily demand loan. Funds
borrowed under this facility are classified as long-term debt and are used to provide working capital as well as support for
letters of credit for insurance policies and other financing arrangements. As of December 31, 2023, the Company has the
following sublimits and available capacity under the credit facility: $100,000 letter of credit sublimit, $83,162 of letters
of credit available capacity, $0 borrowed under the swing-line commitment, $263,162 was available for borrowing and
$720,000 of funds borrowed under the agreement. Interest under the facility is equal to either (i) Term simple secured
overnight financing rate (SOFR), plus applicable margin; or (ii) an Alternate Base Rate (which is based at the highest of
the (a) New York Federal Reserve Bank rate, plus 0.5%, (b) the prime rate, and, (c) the daily SOFR, plus 1.0%,) plus
applicable margin. The applicable margin for an Alternate Base Rate loan will be up to 0.5% and for a SOFR loan will be
up to 1.5%, in each case depending on the debt ratings in effect as of such date. The Company may elect either the Term
SOFR or the Alternate Base Rate at the time of the drawdown, and loans may be converted from one rate to another at any
time, subject or certain conditions. A facility fee is charged on the total commitment amount of the
agreement. Under these facilities the average cost of borrowings was 6.30% and 3.11%, and the average borrowing
was $537,983 and $297,021, during 2023 and 2022, respectively.
The Company is obligated to comply with covenants under some of its loan and debt agreements. These covenants
contain a number of restrictive financial covenants, which among other things limit, subject to specific exceptions, 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, the Company was in compliance with its debt covenants under its
loan and debt agreements. Failure to comply with the Company’s debt covenants could result in an event of default,
which could result in the Company being required to repay or finance its borrowings before their due date, possibly
limiting the Company’s future borrowings, and increasing its borrowing costs.
Loans Payable – On June 29, 2023, Aqua Pennsylvania and Peoples Natural Gas Companies amended the terms of their
respective $100,000 and $300,000, 364-day revolving credit agreements, as follows: (1) extended the maturity dates to
June 27, 2024; and (2) updated the adjustment on the Bloomberg Short-Term Bank Yield Index (BSBY) Rate. The funds
borrowed under these agreements are classified as loans payable and are used to provide working capital.
As of December 31, 2023 and 2022, funds borrowed under the Aqua Pennsylvania revolving credit agreement were
$23,123 and $20,000, respectively. Interest under this facility is based, at the borrower’s option, on the prime rate, an
adjusted overnight bank funding rate, or an adjusted Bloomberg Short-Term Bank Yield Index (BSBY) floating rate. This
agreement restricts short-term borrowings of Aqua Pennsylvania. A commitment fee of 0.05% is charged on the total
commitment amount of Aqua Pennsylvania’s revolving credit agreement. The average cost of borrowing under the
facility was 5.36% and 2.40%, and the average borrowing was $19,275 and $31,555, during 2023 and 2022, respectively.
The maximum amount outstanding at the end of any one month was $54,472 and $55,000 in 2023 and 2022, respectively.
As of December 31, 2023 and 2022, funds borrowed under the Peoples Natural Gas Companies revolving credit
agreement were $137,000 and $208,500, respectively. Interest under this facility is based, at the borrower’ option, at the
prime rate, an adjusted overnight bank funding rate, or an adjusted BSBY floating rate. A commitment fee of 0.08% is
charged on the total commitment amount of Peoples’ revolving credit agreement. The average cost of borrowing under
the facility was 5.97% and 2.30%, and the average borrowing was $78,952 and $97,458, during 2023 and 2022,
respectively. The maximum amount outstanding at the end of any one month was $161,500 and $234,000 in 2023 and
2022, respectively.
At December 31, 2023 and 2022, the Company had other combined short-term lines of credit of $35,500. Funds
borrowed under these lines are classified as loans payable and are used to provide working capital. As of December 31,
2023 and 2022, funds borrowed under the short-term lines of credit were $0. The average borrowing under the lines was
$0 and $0 during 2023 and 2022, respectively. The maximum amount outstanding at the end of any one month was $0
and $0 in 2023 and 2022, respectively. Interest under the lines is based at the Company’s option, depending on the line,
(cid:25)(cid:22)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
on the prime rate, an adjusted Euro-Rate, an adjusted federal funds rate or at rates offered by the banks. The average cost
of borrowings under all lines during 2023 and 2022 was 0% and 0%, respectively.
Interest Income and Expense– Interest income of $3,401, $3,675, and $2,384 was recognized for the years ended
December 31, 2023, 2022, and 2021, respectively. Interest expense was $283,362, $238,116, and $207,709 in 2023,
2022, and 2021, including amounts capitalized for borrowed funds of $5,241, $6,047, and $4,510, respectively.
Note 12 – Fair Value of Financial Instruments
Financial instruments are recorded at carrying value in the financial statements and approximate fair value, with the
exception of long-term debt, as of the dates presented. The fair value of these instruments is disclosed below in
accordance with current accounting guidance related to financial instruments.
The fair value of loans payable is determined based on its carrying amount and utilizing Level 1 methods and
assumptions. As of December 31, 2023 and 2022, the carrying amount of the Company’s loans payable was $160,123
and $228,500, respectively, which equates to their estimated fair value. The fair value of cash and cash equivalents is
determined based on Level 1 methods and assumptions. As of December 31, 2023 and 2022, the carrying amounts of the
Company's cash and cash equivalents were $4,612 and $11,398, respectively, which equates to their fair value. The
Company’s assets underlying the deferred compensation and non-qualified pension plans are determined by the fair value
of mutual funds, which are based on quoted market prices from active markets utilizing Level 1 methods and assumptions.
As of December 31, 2023 and 2022, the carrying amount of these securities was $26,442 and $24,962, respectively, which
equates to their fair value, and is reported in the consolidated balance sheet in deferred charges and other assets.
Unrealized gains and losses on equity securities held in conjunction with our non-qualified pension plan is as follows:
Net gain (loss) recognized during the period on equity securities
Less: net gain (loss) recognized during the period on equity securities sold during the
period
Unrealized gain (loss) recognized during the reporting period on equity securities still held
at the reporting date
Years ended December 31,
2021
2022
582 $ (895) $ 607
2023
$
-
-
-
582 $ (895) $
607
$
The net gain (loss) recognized on equity securities is presented on the consolidated statements of operations and
comprehensive income on the line item “Other.”
The carrying amounts and estimated fair values of the Company’s long-term debt is as follows:
Carrying amount
Estimated fair value
$
December 31,
2023
6,938,009 $
5,980,722
2022
6,617,395
5,528,131
The fair value of long-term debt has been determined by discounting the future cash flows using current market interest
rates for similar financial instruments of the same duration utilizing level 2 methods and assumptions. The Company’s
customers’ advances for construction have a carrying value of $128,755 and $114,732 at December 31, 2023 and 2022,
respectively. Their relative fair values cannot be accurately estimated because future refund payments depend on several
variables, including new customer connections, customer consumption levels and future rates. Portions of these non-
interest bearing instruments are payable annually through 2033 and amounts not paid by the respective contract expiration
dates become non-refundable. The fair value of these amounts would, however, be less than their carrying value due to
the non-interest bearing feature.
(cid:25)(cid:23)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Note 13 – Stockholders’ Equity
At December 31, 2023, the Company had 600,000,000 shares of common stock authorized; par value $0.50. Shares
outstanding and treasury shares held were as follows:
Shares outstanding
Treasury shares
At-the-Market Offering
2023
273,296,037
3,299,191
December 31,
2022
263,737,084
3,236,237
2021
252,867,623
3,234,765
On October 14, 2022, the Company entered into at-the market sales agreements (“ATM”) with third-party sales agents,
under which the Company may offer and sell shares of its common stock, from time to time, at its option, having an
aggregate gross offering price of up to $500,000 pursuant to the Company’s effective shelf registration statement on Form
S-3 (File No. 333-255235). The Company intends to use the net proceeds from the sales of shares through the ATM for
working capital, capital expenditures, water and wastewater utility acquisitions, and repaying outstanding indebtedness.
As of December 31, 2022, the Company issued 1,321,994 shares of common stock under the ATM for proceeds of
$63,040, net of expenses. During the year ended December 31, 2023, the Company sold 8,938,839 shares of common
stock, in exchange for net proceeds of $322,983, under the ATM. As of December 31, 2023, approximately $110,000
remained available for sale under the ATM.
Forward Equity Sale
In August 2020, the Company entered into a forward equity sale agreement for 6,700,000 shares of common stock with a
third party (the “forward purchaser”). In connection with the forward equity sale agreement, the forward purchaser
borrowed an equal number of shares of the Company’s common stock from stock lenders and sold the borrowed shares to
the public. The Company did not receive any proceeds from the sale of its common stock by the forward purchaser until
settlement of the shares underlying the forward equity sale agreement. The actual proceeds to be received by the
Company would have varied depending upon the settlement date, the number of shares designated for settlement on that
settlement date and the method of settlement. The forward equity sale agreement was accounted for as an equity
instrument and was recorded at a fair value of $0 at inception. The fair value was not adjusted as the Company continued
to meet the accounting requirements for equity instruments.
On August 9, 2021, the Company completely settled forward equity sale agreements by physical share settlement. The
Company issued 6,700,000 shares and received cash proceeds of $299,739 at a forward price of $44.74 per share.
Pursuant to the agreement, the forward price was computed based upon the initial forward price of $46.00 per share,
adjusted for a floating interest rate factor equal to a specified daily rate less a spread and scheduled dividends during the
term of the agreement. The Company used the proceeds received upon settlement of the forward equity sale agreement to
fund general corporate purposes, including for water and wastewater utility acquisitions, working capital and capital
expenditures. There are no remaining shares subject to the forward equity sale agreement.
Common Stock / Tangible Equity Unit Issuances
On April 23, 2019, the Company issued $690,000, less expenses of $16,358, of its tangible equity units (the “Units”), with
a stated amount of $50 per unit. This issuance was part of the financing of the Peoples Gas Acquisition. The Company
recorded the issuance of the purchase contract portion of the Units as additional paid-in-capital of $570,919, less allocable
issuance costs of $13,530, in our financial statements. The Company recorded the amortizing notes portion of the Units
of $119,081 as long-term debt and recorded allocable issuance costs of $2,828 as debt issuance costs.
(cid:25)(cid:24)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Each Unit consisted of a prepaid stock purchase contract and an amortizing note, each issued by the Company. The
amortizing notes had an initial principal amount of $8.62909, or $119,081 in aggregate, and yielded interest at a rate of
3.00% per year, and paid equal quarterly cash installments of $0.75000 per amortizing note (except for the July 30, 2019
installment payment, which was $0.80833 per amortizing note), that constituted a payment of interest and a partial
repayment of principal. This cash payment in the aggregate was equivalent to 6.00% per year with respect to each $50
stated amount of the Units. The amortizing notes represented unsecured senior obligations of the Company.
Certain holders of the tangible equity units had early settled their prepaid stock purchase contracts prior to the due date,
and, in exchange, the Company issued shares of its common stock. During 2022, 981,919 stock purchase contracts were
early settled by the holders of the contracts prior to the mandatory settlement date, resulting in the issuance of 1,166,107
shares of the Company’s common stock. On May 2, 2022, the remaining 6,621,315 stock purchase contracts were each
mandatorily settled for 1.18758 shares of the Company’s common stock, and in the aggregate the Company issued
7,863,354 shares of its common stock. Additionally, the final quarterly installment payment was made, which resulted in
the complete pay-off of the amortizing notes.
At December 31, 2023, the Company had 1,770,819 shares of authorized but unissued Series Preferred Stock, $1.00 par
value.
In April 2021, the Company filed a universal shelf registration, through a filing with the Securities and Exchange
Commission (“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.
The Company has an acquisition shelf registration statement on file with the SEC which permits the offering, from time to
time, of an aggregate of $500,000 in shares of common stock and shares of preferred stock in connection with
acquisitions. The balance remaining available for use under the acquisition shelf registration as of December 31, 2023 is
$487,155.
The form and terms of any securities issued under the universal shelf registration statement and the acquisition shelf
registration statement will be determined at the time of issuance.
The Company has a Dividend Reinvestment and Direct Stock Purchase Plan (“Plan”) that allows reinvested dividends to
be used to purchase shares of common stock at a five percent discount from the current market value. Under the direct
stock purchase program, shares are issued throughout the year. The shares issued under the Plan are either shares
purchased by the Company’s transfer agent in the open-market or original issue shares. In 2023, 2022 and 2021, the
Company sold 430,487, 368,278and 374,824 original issue shares of common stock through the dividend reinvestment
portion of the Plan, for net proceeds of $16,005, $16,619 and $16,799, respectively.
The Company recorded a regulatory asset for its underfunded status of its pension and other post-retirement benefit plans
that would otherwise be charged to other comprehensive income, as it anticipates recovery of its costs through customer
rates.
(cid:25)(cid:25)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Note 14 – Net Income per Common Share and Equity per Common Share
Basic net income per share is based on the weighted average number of common shares outstanding and the weighted
average minimum number of shares issued upon settlement of the stock purchase contracts issued under the tangible
equity units. Diluted net income per share is based on the weighted average number of common shares outstanding and
potentially dilutive shares. The dilutive effect of employee stock-based compensation and shares issuable under the
forward equity sale agreement (from the date the Company entered into the forward equity sale agreement to the
settlement date) are included in the computation of diluted net income per common share. The dilutive effect of stock-
based compensation and shares issuable under the forward equity sale agreement(cid:3)are calculated by using the treasury
stock method and expected proceeds upon exercise or issuance of the stock-based compensation and settlement of the
forward equity sale agreement. The treasury stock method assumes that the proceeds from stock-based compensation and
settlement of the forward equity sale agreement(cid:3)are used to purchase the Company’s common stock at the average market
price during the period. The following table summarizes the shares, in thousands, used in computing basic and diluted net
income per share:
Average common shares outstanding during the period for basic computation
Effect of dilutive securities:
Forward equity sale agreement
Employee stock-based compensation
Average common shares outstanding during the period for diluted computation
Years ended December 31,
2022
262,246
2021
257,487
2023
267,171
-
488
267,659
-
622
262,868
189
504
258,180
The number of outstanding employee stock options that were not included in the diluted earnings per share calculation
because the effect would have been anti-dilutive was 148,725 and 77,506 for the year ended December 31, 2023 and
2022, respectively.(cid:3)(cid:3)For the year ended December 31, 2021 , all of the Company’s employee stock options were included
in the calculation of diluted net income per share as the calculated cost to exercise the stock options was less than the
average market price of the Company’s common stock during these periods. Additionally, the dilutive effect of
performance share units and restricted share units granted are included in the Company’s calculation of diluted net income
per share.(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
On May 2, 2022, all of the remaining stock purchase contracts under the tangible equity units were mandatorily settled.
For the year ended December 31, 2022, the weighted average impact of 2,932,010 shares was included in the basic
computation of the average common shares outstanding based on the number of shares that were issued upon settlement
of the stock purchase contracts under the tangible equity units. For the year ended December 31, 2021, the minimum
settlement amount of the stock purchase contracts under the tangible equity units of 9,041,687 shares was considered
outstanding for the basic computation of the average common shares outstanding.
Equity per common share was $21.57 and $20.39 at December 31, 2023 and 2022, respectively. These amounts were
computed by dividing Essential Utilities stockholders’ equity by the number of shares of common stock outstanding at the
end of each year.
Note 15 – Employee Stock and Incentive Plan
Under the Company’s Amended and Restated Equity Compensation Plan, (the “Plan”) approved by the Company’s
shareholders on May 2, 2019, to replace the 2004 Equity Compensation Plan, stock options, stock units, stock awards,
stock appreciation rights, dividend equivalents, and other stock-based awards may be granted to employees, non-
employee directors, and consultants and advisors. The Plan authorizes 6,250,000 shares for issuance under the plan. A
maximum of 3,125,000 shares under the Plan may be issued pursuant to stock award, stock units and other stock-based
awards, subject to adjustment as provided in the Plan. During any calendar year, no individual may be granted (i) stock
options and stock appreciation rights under the Plan for more than 500,000 shares of common stock in the aggregate or (ii)
(cid:25)(cid:26)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
stock awards, stock units or other stock-based awards under the Plan for more than 500,000 shares of Company stock in
the aggregate, subject to adjustment as provided in the Plan. Awards to employees and consultants under the Plan are
made by a committee of the Board of Directors, except that with respect to awards to the Chief Executive Officer, the
committee recommends those awards for approval by the non-employee directors of the Board of Directors. In the case of
awards to non-employee directors, the Board of Directors makes such awards. At December 31, 2023, 1,527,080 shares
were still available for issuance under the Plan. No further grants may be made under the Company’s 2004 Equity
Compensation Plan.
Performance Share Units – During 2023, 2022 and 2021, the Company granted performance share units. A performance
share unit (“PSU”) represents the right to receive a share of the Company’s common stock if specified performance goals
are met over the three-year performance period specified in the grant, subject to exceptions through the respective vesting
periods, which is generally three years. Each grantee is granted a target award of PSUs and may earn between 0% and
200% of the target amount depending on the Company’s performance against the performance goals.
The performance goals of the 2023, 2022 and 2021 PSU grants consisted of the following metrics:
Metric 1 – Company’s total shareholder return (“TSR”) compared to the TSR for a specific
peer group of investor-owned utilities (a market-based condition)
Metric 2 – Achievement of a targeted cumulative level of rate base growth as a result of
acquisitions (a performance-based condition)
Metric 3 – Achievement of targets for maintaining consolidated operations and maintenance
expenses over the three-year measurement period (a performance-based condition)
38.46%
30.77%
30.77%
The following table provides the compensation expense and income tax benefit for PSUs:
Stock-based compensation within operations and maintenance expense
Income tax benefit
Years ended December 31,
2022
2023
2021
$
6,942 $
1,741
7,950 $
1,997
7,150
2,038
The following table summarizes nonvested PSU transactions for the year ended December 31, 2023:
Nonvested share units at beginning of period
Granted
Performance criteria adjustment
Forfeited
Share units issued
Nonvested share units at end of period
Number of
Share Units
Weighted
Average Fair
Value
556,462 $
162,030
(1,230)
(17,276)
(168,549)
531,437
42.77
45.06
43.97
44.18
53.77
40.03
(cid:25)(cid:27)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
A portion of the fair value of PSUs was estimated at the grant date based on the probability of satisfying the market-based
conditions associated with the PSUs using the Monte Carlo valuation method, which assesses the probabilities of various
outcomes of market conditions. The other portion of the fair value of the PSUs associated with performance-based
conditions was based on the fair market value of the Company’s stock at the grant date, regardless of whether the market-
based condition is satisfied. The fair value of each PSU grant is amortized into compensation expense on a straight-line
basis over their respective vesting periods, generally 36 months. The accrual of compensation costs is based on an
estimate of the final expected value of the award and is adjusted as required for the portion based on the performance-
based condition. The Company assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which
results in a reduction in compensation expense. As the payout of the PSUs includes dividend equivalents, no separate
dividend yield assumption is required in calculating the fair value of the PSUs. The recording of compensation expense
for PSUs has no impact on net cash flows. The following table provides the assumptions used in the pricing model for the
grant, the resulting grant date fair value of PSUs, and the intrinsic value and fair value of PSUs that vested during the
year:
Expected term (years)
Risk-free interest rate
Expected volatility
Weighted average fair value of PSUs granted
Intrinsic value of vested PSUs
Fair value of vested PSUs
Years ended December 31,
2023
2022
2021
3.0
4.43%
33.8%
45.06 $
7,483 $
9,692 $
3.0
1.75%
31.9%
42.33 $
- $
- $
3.0
0.24%
32.1%
43.18
6,050
5,321
$
$
$
As of December 31, 2023, $9,676 of unrecognized compensation costs related to PSUs is expected to be recognized over
a weighted average period of approximately 1.8 years. The aggregate intrinsic value of PSUs as of December 31, 2023
was $19,849. The aggregate intrinsic value of PSUs is based on the number of nonvested share units and the market value
of the Company’s common stock as of the period end date.
Restricted Stock Units – A restricted stock unit (“RSU”) represents the right to receive a share of the Company’s common
stock and is valued based on the fair market value of the Company’s stock on the date of grant. RSUs are eligible to be
earned at the end of a specified restricted period, generally three years, beginning on the date of grant. In some cases, the
right to receive the shares is subject to specific performance goals established at the time the grant is made. The Company
assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which results in a reduction in
compensation expense. As the payout of the RSUs includes dividend equivalents, no separate dividend yield assumption
is required in calculating the fair value of the RSUs. The following table provides the compensation expense and income
tax benefit for RSUs:
Years ended December 31,
2023
2,877 $
722
2022
2,927 $
736
2021
3,360
953
Stock-based compensation within operations and maintenance expense
Income tax benefit
$
(cid:25)(cid:28)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The following table summarizes nonvested RSU transactions for the year ended December 31, 2023:
Nonvested stock units at beginning of period
Granted
Stock units vested
Forfeited
Nonvested stock units at end of period
The following table summarizes the value of RSUs:
Weighted average fair value of RSUs granted
Intrinsic value of vested RSUs
Fair value of vested RSUs
$
Number of
Stock Units
Weighted
Average Fair
Value
180,306 $
75,414
(55,886)
(7,617)
192,217
45.94
45.53
49.01
45.33
45.06
Years ended December 31,
2022
2023
45.53 $
2,427
2,665
44.74 $
3,090
2,483
2021
44.44
2,108
1,726
As of December 31, 2023, $3,433 of unrecognized compensation costs related to RSUs is expected to be recognized over
a weighted average period of approximately 1.8 years. The aggregate intrinsic value of RSUs as of December 31, 2023
was $7,179. The aggregate intrinsic value of RSUs is based on the number of nonvested stock units and the market value
of the Company’s common stock as of the period end date.
Stock Options – A stock option represents the option to purchase a number of shares of common stock of the Company as
specified in the stock option grant agreement at the exercise price per share as determined by the closing market price of
our common stock on the grant date. Stock options are exercisable in installments of 33% annually, starting one year
from the grant date and expire ten years from the grant date. The vesting of stock options granted in 2023 and 2022 are
subject to the achievement of the following performance goal: the Company achieves at least an adjusted return on equity
equal to 150 basis points below the return on equity granted by the Pennsylvania Public Utility Commission during the
Company’s Pennsylvania subsidiary’s last rate proceeding. The adjusted return on equity equals net income, excluding
net income or loss from acquisitions which have not yet been incorporated into a rate application as of the last year end,
divided by equity which excludes equity applicable to acquisitions which are not yet incorporated in a rate application
during the award period.
The Company did not grant stock options for the year ended December 31, 2021. The fair value of each stock option is
amortized into compensation expense using the graded vesting method, which results in the recognition of compensation
costs over the requisite service period for each separately vesting tranche of the stock options as though the stock options
were, in substance, multiple stock option grants. The following table provides compensation expense and income tax
benefit for stock options:
Years ended December 31,
2023
2022
2021
Stock-based compensation within operations and maintenance expenses
Income tax benefit
(cid:3)
$
650 $
162
451 $
140
480
136
(cid:26)(cid:19)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Options under the plans were issued at the closing market price of the stock on the day of the grant. The fair value of
options was estimated at the grant date using the Black-Scholes option-pricing model, which relies on assumptions that
require management’s judgment. The following table provides the assumptions used in the pricing model for grants and
the resulting grant date fair value of stock options granted in the period reported:
Expected term (years)
Risk-free interest rate
Expected volatility
Dividend yield
Grant date fair value per option
2023
5.5
4.03%
27.80%
2.53%
11.37
2022
5.5
1.92%
26.50%
2.37%
9.34
$
$
(cid:3)
Historical information was the principal basis for the selection of the expected term and dividend yield. The expected
volatility is based on a weighted-average combination of historical and implied volatilities over a period that approximates
the expected term of the option. The risk-free interest rate was selected based upon the U.S. Treasury yield curve in effect
at the time of grant for the expected term of the option. The Company assumes that forfeitures will be minimal, and
recognizes forfeitures as they occur, which results in a reduction in compensation expense.(cid:3)
The following table summarizes stock option transactions for the year ended December 31, 2023:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life (years)
Aggregate
Intrinsic Value
Outstanding, beginning of year
Granted
Forfeited
Expired / Cancelled
Exercised
Outstanding at end of year
Shares
820,061
74,632
(3,258)
(819)
(8,174)
882,442 $
36.29
45.39
45.32
37.09
35.13
37.03
Exercisable at end of year
761,220 $
35.72
5.5 $
5.0 $
1,458
1,458
The intrinsic value of stock options is the amount by which the market price of the stock on a given date, such as at the
end of the period or on the day of exercise, exceeded the closing market price of stock on the date of grant. The following
table summarizes the intrinsic value of stock options exercised and the fair value of stock options which vested:
Intrinsic value of options exercised
Fair value of options vested
$
Years ended December 31,
2023
2022
2021
64 $
236
$
960
1,203
1,709
1,485
(cid:26)(cid:20)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The following table summarizes information about the options outstanding and options exercisable as of December 31,
2023:
Options Outstanding
Options Exercisable
Range of prices:
$30.00 - 33.99
$34.00 - 34.99
$35.00 - 35.99
$36.00 and above
Shares
53,442
89,139
591,136
148,725
882,442
Weighted
Average
Remaining
Life (years)
Weighted Average
Exercise Price
Shares
Weighted Average
Exercise Price
3.2 $
4.2
5.2
8.6
5.5 $
30.47
34.51
35.93
45.28
37.03
53,442 $
89,139
591,136
27,503
761,220 $
30.47
34.51
35.93
45.18
35.72
As of December 31, 2023, there was $496 of total unrecognized compensation costs related to nonvested stock options
granted under the plans. The cost is expected to be recognized over a weighted average period of approximately 1.4
years.
Restricted Stock – Restricted stock awards provide the grantee with the rights of a shareholder, including the right to
receive dividends and to vote such shares, but not the right to sell or otherwise transfer the shares during the restriction
period. Restricted stock awards result in compensation expense that is equal to the fair market value of the stock on the
date of the grant and is amortized ratably over the restriction period. The Company expects forfeitures of restricted stock
to be de minimis.
The following table provides the compensation cost and income tax benefit for stock-based compensation related to
restricted stock:
Years ended December 31,
2022
2023
2021
Stock-based compensation within operations and maintenance expense
Income tax benefit
$
43 $
12
50 $
15
130
37
The following table summarizes restricted stock transactions for the year ended December 31, 2023:
Nonvested shares at beginning of period
Granted
Vested
Nonvested shares at end of period
Number of Shares
1,170
1,412
(1,170)
1,412
$
$
Weighted Average
Fair Value
42.75
35.42
42.75
35.42
Stock Awards – Stock awards represent the issuance of the Company’s common stock, without restriction. Stock awards
are granted to the Company’s non-employee directors. The issuance of stock awards results in compensation expense
which is equal to the fair market value of the stock on the grant date, and is expensed immediately upon grant. The
following table provides compensation cost and income tax benefit for stock-based compensation related to stock awards:
Stock-based compensation within operations and maintenance expense
Income tax benefit
(cid:26)(cid:21)
Years ended December 31,
2022
2023
2021
810 $
228
715 $
207
700
202
$
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The following table summarizes the value of stock awards:
Years ended December 31,
2023
2022
2021
Intrinsic and fair value of stock awards vested
Weighted average fair value of stock awards granted
$
810 $
41.58
715 $
46.44
700
47.46
The following table summarizes stock award transactions for year ended December 31, 2023:
Nonvested stock awards at beginning of period
Granted
Vested
Nonvested stock awards at end of period
Note 16 – Pension Plans and Other Post-retirement Benefits
Number of
Stock Awards
Weighted
Average Fair
Value
- $
19,488
(19,488)
-
-
41.58
41.58
-
The Company maintains a qualified, defined benefit pension plan that covers its full-time employees who were hired prior
to the date their respective pension plan was closed to new participants. Retirement benefits under the plan are generally
based on the employee’s total years of service and compensation during the last five years of employment. The
Company’s policy is to fund the plan annually at a level which is deductible for income tax purposes and which provides
assets sufficient to meet its pension obligations over time. To offset some limitations imposed by the Internal Revenue
Code with respect to payments under qualified plans, the Company has a non-qualified Supplemental Pension Benefit
Plan for Salaried Employees in order to prevent some employees from being penalized by these limitations, and to provide
certain retirement benefits based on employee’s years of service and compensation. The net pension costs and obligations
of the qualified and non-qualified plans are included in the tables which follow. Employees hired after their respective
pension plan was closed, may participate in a defined contribution plan that provides a Company matching contribution
on amounts contributed by participants and an annual profit-sharing contribution based upon a percentage of the eligible
participants’ compensation.
The Company’s qualified defined benefit pension plan has a permanent lump sum option to the form of benefit payments
offered to participants upon retirement or termination. The plan paid $30,347 and $17,757 to participants who elected this
option during 2023 and 2022, respectively. During 2023, we made lump-sum pension benefit distributions exceeding the
cumulative amount of service and interest cost components of the net periodic pension cost for the year, which is the
settlement accounting threshold. The settlement loss of $5,173 was recorded as a regulatory asset, as it is probable of
recovery in future rates, and will be amortized into pension benefit costs. A settlement loss is the recognition of
unrecognized pension benefit costs that would have been incurred in subsequent periods.
In addition to providing pension benefits, the Company offers post-retirement benefits other than pensions to employees
retiring with a minimum level of service and hired before their respective plan closed to new participants. These benefits
include continuation of medical and prescription drug benefits, or a cash contribution toward such benefits, for eligible
retirees and life insurance benefits for eligible retirees. The Company funds these benefits through various trust accounts.
The benefits of retired officers and other eligible retirees are paid by the Company and not from plan assets due to
limitations imposed by the Internal Revenue Code.
(cid:26)(cid:22)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years
indicated:
Years:
2024
2025
2026
2027
2028
2029-2033
Pension Benefits
Other Post-retirement Benefits
$
26,611 $
27,306
27,098
28,755
27,446
124,461
5,287
5,546
5,819
6,086
6,272
32,778
The changes in the benefit obligation and fair value of plan assets, the funded status of the plans and the assumptions used
in the measurement of the company’s benefit obligation are as follows:
Pension Benefits
2023
2022
Other Post-retirement Benefits
2023
2022
Change in benefit obligation:
$
Benefit obligation at January 1,
Service cost
Interest cost
Actuarial loss/(gain)
Plan participants' contributions
Benefits paid
Plan amendments
Participants' directed transfer of benefit to other plans
Settlements
Benefit obligation at December 31,
324,690 $
1,507
16,007
20,418
-
(18,577)
-
-
(30,347)
313,698
452,947 $
2,587
13,806
(105,107)
-
(19,339)
2,121
(4,568)
(17,757)
324,690
Change in plan assets:
Fair value of plan assets at January 1,
Actual return on plan assets
Employer contributions
Participants' contributions
Benefits paid
Settlements
Fair value of plan assets at December 31,
333,176
7,648
20,343
-
(18,517)
(30,347)
312,303
433,121
(83,297)
20,390
-
(19,281)
(17,757)
333,176
83,501
1,347
4,476
5,008
106
(2,936)
-
-
-
91,502
85,994
12,060
-
106
(3,155)
-
95,005
$
114,651
1,911
3,369
(31,995)
145
(4,580)
-
-
-
83,501
107,308
(19,589)
1,636
145
(3,506)
-
85,994
Funded status of plan:
Net asset / (liability) recognized at December 31,
$
(1,395) $
8,486 $
3,503
$
2,493
The following table provides the net liability recognized on the consolidated balance sheets at December 31:
Non-current asset
Current liability
Noncurrent liability
Net asset / (liability) recognized
Pension Benefits
2023
2022
Other Post-retirement Benefits
2023
2022
$
$
16,325 $
(1,334)
(16,386)
(1,395) $
24,389 $
(761)
(15,142)
8,486 $
26,700 $
(733)
(22,464)
3,503 $
19,438
(843)
(16,102)
2,493
(cid:26)(cid:23)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The following table provides selected information about plans with accumulated benefit obligation and projected benefit
obligation in excess of plan assets:
December 31,
2023
December 31,
2022
Pension
Benefits
Other
Post-retirement
Benefits
Pension
Benefits
Other
Post-retirement
Benefits
Selected information for plans with projected benefit
obligation in excess of plan assets:
Projected benefit obligation
Fair value of plan assets
Selected information for plans with accumulated benefit
obligation in excess of plan assets:
Accumulated benefit obligation
Fair value of plan assets
$
17,720 $
-
N/A
N/A
$
16,041 $
-
N/A
N/A
14,843
-
35,154
11,957
12,126
-
29,009
12,064
The following table provides the components of net periodic benefit costs for the years ended December 31:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of actuarial loss (gain)
Net periodic benefit cost/(credit)
Pension Benefits
2023
2022
2021
1,507 $
16,007
(22,223)
684
2,962
(1,063) $
2,587 $
13,806
(22,004)
536
2,043
(3,032) $
3,503 $
13,018
(23,165)
559
2,907
(3,178) $
$
$
Other Post-retirement Benefits
2021
2,793
3,358
(4,155)
(432)
219
1,783
2022
1,911 $
3,369
(4,502)
-
(1,336)
2023
1,347 $
4,476
(4,372)
-
(1,317)
(558) $
134 $
The Company records the underfunded/overfunded status of its pension and other post-retirement benefit plans on its
consolidated balance sheets and records a regulatory asset/liability for these costs that would otherwise be charged to
stockholders’ equity, as the Company anticipates recoverability of the costs through customer rates to be probable.
Changes in the plans’ funded status will affect the assets and liabilities recorded on the balance sheet. Due to the
Company’s regulatory treatment, the recognition of the funded status is recorded as a regulatory asset pursuant to the
FASB’s accounting guidance for regulated operations.
The following table provides the amounts recognized in regulatory assets and regulatory liabilities that have not been
recognized as components of net periodic benefit cost as of December 31:
Net actuarial loss (gain)
Prior service cost (credit)
Total recognized in regulatory assets
$
$
84,030 $
1,866
85,896 $
56,737 $
2,550
59,287 $
Pension Benefits
2023
2022
Other Post-retirement Benefits
2023
(21,257)
-
(21,257)
2022
(19,894)
-
(19,894)
$
$
(cid:26)(cid:24)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Accounting for pensions and other post-retirement benefits requires an extensive use of assumptions about the discount
rate, expected return on plan assets, the rate of future compensation increases received by the Company’s employees,
mortality, turnover and medical costs. Each assumption is reviewed annually with assistance from the Company’s
actuarial consultant who provides guidance in establishing the assumptions. The assumptions are selected to represent the
average expected experience over time and may differ in any one year from actual experience due to changes in capital
markets and the overall economy. These differences will impact the amount of pension and other post-retirement benefit
expense that the Company recognizes.
The significant assumptions related to the Company’s benefit obligations are as follows:
Weighted Average Assumptions Used to Determine Benefit Obligations as of December
31,
Discount rate
Rate of compensation increase
Assumed Health Care Cost Trend Rates Used to Determine Benefit Obligations as of
December 31,
Health care cost trend rate
Rate to which the cost trend is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
n/a – Assumption is not applicable.
Pension Benefits
2022
2023
Other Post-
retirement Benefits
2023
2022
5.17%
5.51%
3.0-4.0% 3.0-4.0%
5.09%
n/a
5.45%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
6.25%
5.0%
2029
6.50%
5.0%
2029
The significant assumptions related to the Company’s net periodic benefit costs are as follows:
Pension Benefits
2023
2022
2021
Other Post-retirement Benefits
2021
2023
2022
Weighted Average Assumptions Used to Determine
Net Periodic Benefit Costs for Years Ended
December 31,
Discount rate *
Expected return on plan assets
Rate of compensation increase
Assumed Health Care Cost Trend Rates Used to
Determine Net Periodic Benefit Costs for Years
Ended December 31,
Health care cost trend rate
Rate to which the cost trend is assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
n/a – Assumption is not applicable.
5.51%
6.80%
3.0-4.0%
2.91%
5.40%
2.57%
2.96%
5.45%
5.60% 4.28%-6.8% 3.4%-5.4%
n/a
n/a
2.68%
5.60%
n/a
3.0-4.0% 3.0-4.0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
6.50%
6.25%
6.3%
5.0%
2029
5.0%
2027
5.0%
2025
* In 2023 and 2022, the Company remeasured its qualified pension plan assets and liabilities in accordance with settlement accounting rules. The
discount rate used for the remeasurement and for the calculation of the net periodic benefit cost for the remainder of the year in 2023 and 2022 was
5.20% and 5.58%, respectively.
The Company’s discount rate assumption, which is utilized to calculate the present value of the projected benefit
payments of our post-retirement benefits, was determined by selecting a hypothetical portfolio of high-quality corporate
bonds appropriate to match the projected benefit payments of the plans. The selected bond portfolio was derived from a
universe of Aa-graded corporate bonds. The discount rate was then developed as the rate that equates the market value of
(cid:26)(cid:25)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
the bonds purchased to the discounted value of the plan’s benefit payments. The Company’s pension expense and liability
(benefit obligations) increases as the discount rate is reduced.
The Company’s expected return on plan assets is determined by evaluating the asset class return expectations with its
advisors as well as actual, long-term, historical results of our asset returns. The Company’s market related value of plan
assets is equal to the fair value of the plan’s assets as of the last day of its fiscal year, and is a determinant for the expected
return on plan assets which is a component of post-retirement benefits expense. The Company’s pension expense
increases as the expected return on plan assets decreases. For 2023, the Company used a 6.8% expected return on plan
assets assumption. The Company believes its actual long-term asset allocation on average will approximate the targeted
allocation. The Company’s investment strategy is to earn a reasonable rate of return while maintaining risk at acceptable
levels. Risk is managed through fixed income investments to manage interest rate exposures that impact the valuation of
liabilities and through the diversification of investments across and within various asset categories. Over time, as the
plan’s funded status increases, the target allocation of return-seeking assets (e.g., equities and other instruments with a
similar risk profile) may decline and the target allocation of liability-hedging assets (e.g., fixed income and other
instruments with a similar risk profile) may increase. Investment returns are compared to a total plan benchmark
constructed by applying the plan’s asset allocation target weightings to passive index returns representative of the
respective asset classes in which the plan invests. The Retirement and Employee Benefits Committee meets quarterly to
review plan investments and management monitors investment performance quarterly through a performance report
prepared by an external consulting firm.
The target allocation by asset class as of December 31, 2023, along with the actual allocation of the Company’s pension
plan assets, are as follows:
Return seeking assets
Liability hedging assets
Total
Target Allocation
20 to 40%
30 to 70%
100%
2023
38%
62%
100%
2022
56%
44%
100%
Percentage of Plan Assets at December 31,
The fair value of the Company’s pension plans’ assets at December 31, 2023 by asset class are as follows:
Common stock
Return seeking assets:
Global equities
Hedge / diversifying strategies
Credit
Liability hedging assets
Cash and cash equivalents
Total pension assets
Level 1
Level 2
Level 3
$
14,115 $
-
-
-
-
7,239
21,354 $
$
- $
-
-
-
-
-
- $
- $
-
-
-
-
-
- $
Assets measured at
NAV (a)
Total
- $
14,115
9,226
57,608
37,798
186,317
-
290,949 $
9,226
57,608
37,798
186,317
7,239
312,303
(a)(cid:3) Assets that are measured at fair value using the NAV per share practical expedient have not been classified in the
fair value hierarchy.
(cid:26)(cid:26)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The fair value of the Company’s pension plans’ assets at December 31, 2022 by asset class are as follows:
Common stock
Return seeking assets:
Global equities
Hedge / diversifying strategies
Credit
Liability hedging assets
Cash and cash equivalents
Total pension assets
Level 1
Level 2
Level 3
$
18,037 $
-
-
-
-
31,670
49,707 $
$
- $
-
-
-
-
-
- $
- $
-
-
-
-
-
- $
Assets measured at
NAV (a)
Total
- $
18,037
15,163
102,038
52,048
114,220
-
283,469 $
15,163
102,038
52,048
114,220
31,670
333,176
Equity securities include our common stock in the amounts of $14,115 or 4.5% and $18,037 or 5.4% of total pension
plans’ assets as of December 31, 2023 and 2022, respectively.
The target allocation by asset class as of December 31, 2023, and actual asset allocation of the Company’s other post-
retirement benefit plans, are as follows:
Return seeking assets
Liability hedging assets
Total
Target Allocation
50 to 70%
30 to 50%
100%
2023
68%
32%
100%
2022
62%
38%
100%
Percentage of Plan Assets at December 31,
The fair value of the Company’s other post-retirement benefit plans’ assets at December 31, 2023 by asset class are as
follows:
Return seeking assets:
Global equities
Real estate securities
Liability hedging assets
Cash and cash equivalents
Total other post-retirement assets
Level 1
Level 2
Level 3
Assets measured at
NAV (a)
Total
$
$
34,209 $
7,041
16,949
3,790
61,989 $
- $
-
-
-
- $
- $
-
-
-
- $
19,890 $
3,653
9,473
-
33,016 $
54,099
10,694
26,422
3,790
95,005
(a)(cid:3) Assets that are measured at fair value using the NAV per share practical expedient have not been classified in the
fair value hierarchy.
The fair value of the Company’s other post-retirement benefit plans’ assets at December 31, 2022 by asset class are as
follows:
Return seeking assets:
Global equities
Real estate securities
Liability hedging assets
Cash and cash equivalents
Total other post-retirement assets
Level 1
Level 2
Level 3
Assets measured at
NAV (a)
Total
$
$
27,258 $
6,386
15,131
8,725
57,500 $
- $
-
-
-
- $
- $
-
-
-
- $
16,024 $
3,311
9,159
-
28,494
$
43,282
9,697
24,290
8,725
85,994
(cid:26)(cid:27)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Valuation Techniques Used to Determine Fair Value
(cid:120)(cid:3) Common Stocks - Investments in common stocks are valued using unadjusted quoted prices obtained from active
markets.
(cid:120)(cid:3) Return Seeking Assets – Investments in return seeking assets consists of the following:
(cid:82)(cid:3) Global equities, which consist of common and preferred shares of stock, traded on U.S. or foreign
exchanges that are valued using unadjusted quoted prices obtained from active markets, or commingled
fund vehicles, consisting of such securities valued using NAV, which are not classified within the fair
value hierarchy.
(cid:82)(cid:3) Real estate securities, which consist of securities, traded on U.S. or foreign exchanges that are valued
using unadjusted quoted prices obtained from active markets, or for real estate commingle fund vehicles
that are not publicly quoted, the fund administrators value the funds using the NAV per fund share,
derived from the quoted prices in active markets of the underlying securities and are not classified within
the fair value hierarchy.
(cid:82)(cid:3) Hedge / diversifying strategies, which consist of a multi-manager fund vehicle having underlying
exposures that collectively seek to provide low correlation of return to equity and fixed income markets,
thereby offering diversification. As a multi-manager fund investment, NAV is derived from underlying
manager NAVs, which are derived from the quoted prices in active markets of the underlying securities
and are not classified within the fair value hierarchy.
(cid:82)(cid:3) Credit, which consist of certain opportunistic, return-oriented credits which primarily include below
investment grade bonds (i.e. high yield bonds), bank loans, and securitized debt. Credits are valued using
the NAV per fund share, derived from either quoted prices in active markets of the underlying securities,
or less active markets, or quotes of similar assets, and are not classified within the fair value hierarchy.
(cid:120)(cid:3) Liability Hedging Assets – Investments in liability hedging assets consist of funds investing in high-quality fixed
income securities (i.e. U.S. Treasury securities and government bonds), and for funds for which market quotations
are readily available, are valued at the last reported closing price on the primary market or exchange on which
they are traded. Funds for which market quotations are not readily available, are valued using the NAV per fund
share, derived from the quoted prices in active markets of the underlying securities and are not classified within
the fair value hierarchy.
(cid:120)(cid:3) Cash and Cash Equivalents – Investments in cash and cash equivalents are comprised of both uninvested cash and
money market funds. The uninvested cash is valued based on its carrying value, and the money market funds are
valued utilizing the net asset value per unit obtained from published market prices.
Funding requirements for qualified defined benefit pension plans are determined by government regulations and not by
accounting pronouncements. In accordance with funding rules and the Company’s funding policy, during 2024 our
pension contribution is expected to be $9,393.
The Company has a 401(k) savings plan, which is a defined contribution plan and covers substantially all employees. The
Company makes matching contributions that are based on a percentage of an employee’s contribution, subject to specific
limitations, as well as, non-discretionary contributions based on eligible hourly wages for certain union employees,
discretionary year-end contributions based on an employee’s eligible compensation, and employer profit sharing
contributions. Participants may diversify their Company matching account balances into other investments offered under
the 401(k) savings plan. The Company’s contributions, which are recorded as compensation expense, were $23,519,
$21,758, and $19,569, for the years ended December 31, 2023, 2022, and 2021, respectively.
(cid:26)(cid:28)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Note 17 –Rate Activity
On January 19, 2024, Aqua New Jersey filed an application with the New Jersey Board of Public Utilities designed to
increase water rates by $8,328 or 17.3% on an annual basis. The Company anticipates a final order to be issued by
August 2024.
On January 2, 2024, Aqua Illinois filed an application with the Illinois Commerce Commission designed to increase water
and wastewater rates by $19,196 or 18.9% on an annual basis. The Company anticipates a final order to be issued by
December 2024.
On December 29, 2023, Peoples Natural Gas filed an application with the Pennsylvania Public Utility Commission
designed to increase natural gas rates by $156,024 or 18.7% on an annual basis. The Company anticipates a final order to
be issued by September 2024.
On December 13, 2023, the Company’s regulated water and wastewater utility operating divisions in Ohio received an
order from the Public Utilities Commission of Ohio which will increase operating revenues by $4,850 annually. New rates
for water and sewer service went into effect on December 13, 2023.
On September 28, 2023, the Company’s regulated water and wastewater operating subsidiary in Texas, Aqua Texas,
received a final order from the Public Utility Commission of Texas approving infrastructure rehabilitation surcharges
designed to increase revenues by $8,388 annually. The rates authorized on March 28, 2023 and implemented on an
interim basis effective April 1, 2023 did not change with the final order.
On July 27, 2023, the Company’s regulated water and wastewater operating subsidiary in Virginia, Aqua Virginia, filed
an application with the State Corporation Commission designed to increase revenues by $6,911 or 29.5% on an annual
basis.
On June 5, 2023, the Company’s regulated water and wastewater operating subsidiary in North Carolina, Aqua North
Carolina, received an order from the North Carolina Utilities Commission designed to increase rates by $14,001 in the
first year of new rates being implemented, then by an additional $3,743 and $4,130 in the second and third years,
respectively. In February 2023, the Company had implemented interim rates, based on an estimate of the final outcome of
the order, and no refunds or additional billings are required for the difference between interim and final approved rates.
On September 21, 2022, the Company’s regulated water and wastewater utility operating divisions in Ohio received an
order from the Public Utilities Commission of Ohio which increased operating revenues by $5,483 annually. New rates
for water and sewer service went into effect on September 21, 2022.
On May 16, 2022, the Company’s regulated water and wastewater operating subsidiary in Pennsylvania, Aqua
Pennsylvania, received an order from the Pennsylvania Public Utility Commission that allowed base rate increases that
would increase total annual operating revenues by $69,251. New rates went into effect on May 19, 2022. At the time the
rate order was received, the rates in effect also included $35,470 in Distribution System Improvement Charges (“DSIC”),
which was 7.2% above prior base rates. Consequently, the aggregate annual base rates increased by $104,721 since the
last base rate increase and DSIC was reset to zero.
On January 3, 2022, the Company’s natural gas operating division in Kentucky received an order from the Kentucky
Public Service Commission resulting in an increase of $5,238 in annual revenues, and new rates went into effect on
January 4, 2022. On June 7, 2022, an additional $260 was approved and made effective by the Commission, resulting
from a rehearing requested by the operating division.
In addition to the Texas, North Carolina, Ohio, Pennsylvania, and Kentucky rate awards noted above, the Company’s
operating subsidiaries were allowed annualized rate increases of $1,703 in 2023, $1,378 in 2022, and $3,390 in 2021,
represented by three, two, and six rate decisions, respectively. Revenues recognized in aggregate from all of the rate
(cid:27)(cid:19)
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
increases realized in the year of grant were approximately $10,109, $51,163, and $2,995 in 2023, 2022, and 2021,
respectively.
Eight states in which the Company operates permit water and wastewater utilities to add a surcharge to their water or
wastewater bills to offset the additional depreciation and capital costs related to infrastructure system replacement and
rehabilitation projects completed and placed into service between base rate filings. Additionally, Pennsylvania and
Kentucky allow for the use of an infrastructure rehabilitation surcharge for natural gas utility systems. The surcharge for
infrastructure system replacements and rehabilitations is typically adjusted periodically based on additional qualified
capital expenditures completed or anticipated in a future period, is capped as a percentage of base rates, generally at 5% to
12.75%, and is reset to zero when new base rates that reflect the costs of those additions become effective or when a
utility’s earnings exceed a regulatory benchmark. During 2023, the Company received approval to bill infrastructure
rehabilitation surcharges designed to increase total operating revenues on an annual basis by $18,814 in its water and
wastewater utility operating divisions in Pennsylvania, New Jersey, Illinois and Texas, and $21,272 in its gas utility
operating divisions in Pennsylvania and Kentucky. The surcharge for infrastructure system replacements and
rehabilitations provided revenues in 2023, 2022, and 2021 of $20,261, $26,902, and $33,771, respectively.
Note 18 – Segment Information
The Company has eleven operating segments and has two reportable segments, the Regulated Water segment and the
Regulated Natural Gas segment.(cid:3)(cid:3)The Regulated Water segment is comprised of eight operating segments representing its
water and wastewater regulated utility companies, which are organized by the states where the Company provides water
and wastewater services. The eight water and wastewater utility operating segments are aggregated into one reportable
segment, because each of these operating segments has the following similarities: economic characteristics, nature of
services, production processes, customers, water distribution or wastewater collection methods, and the nature of the
regulatory environment. 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, it includes two operating segments within the Other category
below. These segments are not quantitatively significant and are comprised of its non-regulated natural gas operations
and Aqua Resources. Non-regulated natural gas operations consist of utility service line protection solutions and repair
services to households and the operation of gas marketing and production entities. Aqua Resources offers, through a third
party, water and sewer service line protection solutions and repair services to households. In addition to these segments,
Other is comprised of business activities not included in the reportable segments, corporate costs that have not been
allocated to the Regulated Water and Regulated Natural Gas segments, and intersegment eliminations. Corporate costs
include general and administrative expenses, and interest expense. The Company reports these corporate costs within
Other as they relate to corporate-focused responsibilities and decisions and are not included in internal measures of
segment operating performance used by the Company to measure the underlying performance of the operating segments.
The following table presents information about the Company’s reportable segments:
2023
Regulated Water
Regulated
Natural Gas
Other and
Eliminations
Operating revenues
Operations and maintenance expense
Purchased gas
Depreciation and amortization
Interest expense, net (a)
Allowance for funds used during construction
Provision for income taxes (benefit)
Net income (loss)
Capital expenditures
Total assets
$
$
$
$
$
$
$
$
$
$
1,153,376 $
368,843 $
- $
217,593 $
124,680 $
(14,786) $
57,546 $
340,961 $
668,720 $
9,386,347 $
(cid:27)(cid:20)
863,759 $
209,073 $
327,548 $
125,263 $
92,320 $
(2,181) $
(113,353) $
200,563 $
527,538 $
6,965,350 $
36,689 $
(2,398) $
24,758 $
839 $
62,961 $
- $
(10,638) $
(43,298) $
2,845 $
489,762 $
Consolidated
2,053,824
575,518
352,306
343,695
279,961
(16,967)
(66,445)
498,226
1,199,103
16,841,459
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
2022
Operating revenues
Operations and maintenance expense
Purchased gas
Depreciation and amortization
Interest expense, net (a)
Allowance for funds used during construction
Provision for income taxes (benefit)
Net income (loss)
Capital expenditures
Total assets
Regulated Water
$
$
$
$
$
$
$
$
$
$
1,082,972 $
370,850 $
- $
201,392 $
111,938 $
(20,950) $
47,510 $
314,352 $
576,314 $
8,792,633 $
Regulated
Natural Gas
Other and
Eliminations
1,143,362 $
239,506 $
551,009 $
118,955 $
87,186 $
(2,715) $
(61,942) $
185,276 $
479,335 $
6,528,654 $
61,698 $
3,293 $
50,986 $
830 $
35,317 $
- $
103 $
(34,391) $
7,114 $
397,820 $
2021
Regulated Water
Regulated
Natural Gas
Other and
Eliminations
Operating revenues
Operations and maintenance expense
Purchased gas
Depreciation and amortization
Interest expense, net (a)
Allowance for funds used during construction
Provision for income taxes (benefit)
Net income (loss)
Capital expenditures
Total assets
$
$
$
$
$
$
$
$
$
$
980,203 $
332,598 $
- $
182,074 $
108,356 $
(19,258) $
26,633 $
293,703 $
621,595 $
8,403,586 $
859,902 $
226,194 $
313,390 $
113,238 $
75,628 $
(1,534) $
(40,013) $
148,193 $
397,419 $
5,960,602 $
38,039 $
(8,212) $
26,872 $
2,640 $
21,341 $
- $
3,768 $
(10,284) $
1,505 $
294,090 $
Consolidated
2,288,032
613,649
601,995
321,177
234,441
(23,665)
(14,329)
465,237
1,062,763
15,719,107
Consolidated
1,878,144
550,580
340,262
297,952
205,325
(20,792)
(9,612)
431,612
1,020,519
14,658,278
(a) The regulated water and regulated natural gas segments report interest expense that includes long-term debt that was pushed-down to the regulated
operating subsidiaries from Essential Utilities, Inc.
(cid:27)(cid:21)
(cid:24)(cid:34)(cid:31)(cid:1)(cid:33)(cid:42)(cid:27)(cid:41)(cid:34)(cid:1)(cid:28)(cid:31)(cid:37)(cid:40)(cid:47)(cid:1)(cid:38)(cid:27)(cid:44)(cid:29)(cid:34)(cid:31)(cid:43)(cid:1)(cid:44)(cid:34)(cid:31)(cid:1)(cid:29)(cid:45)(cid:38)(cid:45)(cid:37)(cid:27)(cid:44)(cid:35)(cid:46)(cid:31)(cid:1)(cid:16)(cid:8)(cid:26)(cid:31)(cid:27)(cid:42)(cid:1)(cid:44)(cid:40)(cid:44)(cid:27)(cid:37)(cid:1)(cid:42)(cid:31)(cid:44)(cid:45)(cid:42)(cid:39)(cid:1)(cid:40)(cid:32)(cid:1)(cid:34)(cid:40)(cid:37)(cid:30)(cid:31)(cid:42)(cid:43)(cid:1)(cid:40)(cid:32)(cid:1)(cid:19)(cid:43)(cid:43)(cid:31)(cid:39)(cid:44)(cid:35)(cid:27)(cid:37)(cid:1)(cid:25)(cid:44)(cid:35)(cid:37)(cid:35)(cid:44)(cid:35)(cid:31)(cid:43)(cid:7)(cid:1)(cid:20)(cid:39)(cid:29)(cid:9)(cid:4)(cid:43)(cid:1)(cid:29)(cid:40)(cid:38)(cid:38)(cid:40)(cid:39)(cid:1)(cid:43)(cid:44)(cid:40)(cid:29)(cid:36)(cid:1)(cid:47)(cid:35)(cid:44)(cid:34)(cid:1)(cid:44)(cid:34)(cid:31)(cid:1)
(cid:29)(cid:45)(cid:38)(cid:45)(cid:37)(cid:27)(cid:44)(cid:35)(cid:46)(cid:31)(cid:1)(cid:44)(cid:40)(cid:44)(cid:27)(cid:37)(cid:1)(cid:42)(cid:31)(cid:44)(cid:45)(cid:42)(cid:39)(cid:43)(cid:1)(cid:40)(cid:32)(cid:1)(cid:44)(cid:34)(cid:31)(cid:1)(cid:23)(cid:3)(cid:22)(cid:1)(cid:16)(cid:11)(cid:11)(cid:1)(cid:35)(cid:39)(cid:30)(cid:31)(cid:48)(cid:7)(cid:1)(cid:27)(cid:39)(cid:30)(cid:1)(cid:44)(cid:34)(cid:31)(cid:1)(cid:23)(cid:3)(cid:22)(cid:1)(cid:21)(cid:35)(cid:30)(cid:18)(cid:27)(cid:41)(cid:1)(cid:15)(cid:11)(cid:11)(cid:1)(cid:25)(cid:44)(cid:35)(cid:37)(cid:35)(cid:44)(cid:35)(cid:31)(cid:43)(cid:1)(cid:35)(cid:39)(cid:30)(cid:31)(cid:48)(cid:9)(cid:1)(cid:24)(cid:34)(cid:31)(cid:1)(cid:33)(cid:42)(cid:27)(cid:41)(cid:34)(cid:1)(cid:27)(cid:43)(cid:43)(cid:45)(cid:38)(cid:31)(cid:43)(cid:1)(cid:44)(cid:34)(cid:27)(cid:44)(cid:1)(cid:44)(cid:34)(cid:31)(cid:1)(cid:46)(cid:27)(cid:37)(cid:45)(cid:31)(cid:1)(cid:40)(cid:32)(cid:1)(cid:44)(cid:34)(cid:31)(cid:1)
(cid:35)(cid:39)(cid:46)(cid:31)(cid:43)(cid:44)(cid:38)(cid:31)(cid:39)(cid:44)(cid:1)(cid:35)(cid:39)(cid:1)(cid:40)(cid:45)(cid:42)(cid:1)(cid:29)(cid:40)(cid:38)(cid:38)(cid:40)(cid:39)(cid:1)(cid:43)(cid:44)(cid:40)(cid:29)(cid:36)(cid:7)(cid:1)(cid:35)(cid:39)(cid:1)(cid:31)(cid:27)(cid:29)(cid:34)(cid:1)(cid:35)(cid:39)(cid:30)(cid:31)(cid:48)(cid:7)(cid:1)(cid:27)(cid:39)(cid:30)(cid:1)(cid:35)(cid:39)(cid:1)(cid:44)(cid:34)(cid:31)(cid:1)(cid:41)(cid:31)(cid:31)(cid:42)(cid:1)(cid:33)(cid:42)(cid:40)(cid:45)(cid:41)(cid:1)(cid:5)(cid:35)(cid:39)(cid:29)(cid:37)(cid:45)(cid:30)(cid:35)(cid:39)(cid:33)(cid:1)(cid:42)(cid:31)(cid:35)(cid:39)(cid:46)(cid:31)(cid:43)(cid:44)(cid:38)(cid:31)(cid:39)(cid:44)(cid:1)(cid:40)(cid:32)(cid:1)(cid:30)(cid:35)(cid:46)(cid:35)(cid:30)(cid:31)(cid:39)(cid:30)(cid:43)(cid:6)(cid:1)(cid:47)(cid:27)(cid:43)(cid:1)(cid:2)(cid:12)(cid:11)(cid:11)(cid:1)(cid:40)(cid:39)(cid:1)
(cid:12)(cid:13)(cid:10)(cid:14)(cid:12)(cid:10)(cid:13)(cid:11)(cid:12)(cid:17)(cid:1)(cid:27)(cid:39)(cid:30)(cid:1)(cid:44)(cid:42)(cid:27)(cid:29)(cid:36)(cid:43)(cid:1)(cid:35)(cid:44)(cid:1)(cid:44)(cid:34)(cid:42)(cid:40)(cid:45)(cid:33)(cid:34)(cid:1)(cid:12)(cid:13)(cid:10)(cid:14)(cid:12)(cid:10)(cid:13)(cid:11)(cid:13)(cid:14)(cid:9)(cid:1)
(cid:1)
(cid:4)(cid:11)(cid:9)(cid:12)(cid:3)(cid:13)(cid:7)(cid:14)(cid:11)(cid:10)(cid:1)(cid:11)(cid:6)(cid:1)(cid:6)(cid:7)(cid:17)(cid:5)(cid:1)(cid:18)(cid:5)(cid:3)(cid:13)(cid:1)(cid:4)(cid:16)(cid:9)(cid:16)(cid:8)(cid:3)(cid:15)(cid:7)(cid:17)(cid:5)(cid:1)(cid:15)(cid:11)(cid:15)(cid:3)(cid:8)(cid:1)(cid:13)(cid:5)(cid:15)(cid:16)(cid:13)(cid:10)(cid:2)
(cid:8)(cid:24)(cid:26)(cid:25)(cid:20)(cid:1)(cid:10)(cid:28)(cid:28)(cid:19)(cid:25)(cid:29)(cid:22)(cid:16)(cid:23)(cid:1)(cid:15)(cid:29)(cid:22)(cid:23)(cid:22)(cid:29)(cid:22)(cid:19)(cid:28)(cid:3)(cid:1)(cid:11)(cid:25)(cid:17)(cid:4)(cid:3)(cid:1)(cid:29)(cid:21)(cid:19)(cid:1)(cid:14)(cid:2)(cid:13)(cid:1)(cid:7)(cid:5)(cid:5)(cid:1)(cid:11)(cid:25)(cid:18)(cid:19)(cid:30)(cid:3)(cid:1)(cid:16)(cid:25)(cid:18)(cid:1)(cid:29)(cid:21)(cid:19)(cid:1)(cid:14)(cid:2)(cid:13)(cid:1)(cid:12)(cid:22)(cid:18)(cid:9)(cid:16)(cid:27)(cid:1)(cid:6)(cid:5)(cid:5)(cid:1)(cid:15)(cid:29)(cid:22)(cid:23)(cid:22)(cid:29)(cid:22)(cid:19)(cid:28)(cid:1)(cid:11)(cid:25)(cid:18)(cid:19)(cid:30)
(cid:1)(cid:4)(cid:6)(cid:2)
(cid:1)(cid:4)(cid:2)(cid:2)
(cid:1)(cid:3)(cid:6)(cid:2)
(cid:1)(cid:3)(cid:2)(cid:2)
(cid:1)(cid:6)(cid:2)
(cid:1)(cid:2)
(cid:4)(cid:2)(cid:3)(cid:7)
(cid:4)(cid:2)(cid:3)(cid:8)
(cid:4)(cid:2)(cid:4)(cid:2)
(cid:4)(cid:2)(cid:4)(cid:3)
(cid:4)(cid:2)(cid:4)(cid:4)
(cid:4)(cid:2)(cid:4)(cid:5)
(cid:8)(cid:22)(cid:22)(cid:17)(cid:20)(cid:23)(cid:18)(cid:14)(cid:19)(cid:1)(cid:13)(cid:23)(cid:18)(cid:19)(cid:18)(cid:23)(cid:18)(cid:17)(cid:22)(cid:3)(cid:1)(cid:9)(cid:20)(cid:15)(cid:4)
(cid:12)(cid:2)(cid:11)(cid:1)(cid:7)(cid:5)(cid:5)(cid:1)(cid:9)(cid:20)(cid:16)(cid:17)(cid:24)
(cid:12)(cid:2)(cid:11)(cid:1)(cid:10)(cid:18)(cid:16)(cid:15)(cid:14)(cid:21)(cid:1)(cid:6)(cid:5)(cid:5)(cid:1)(cid:13)(cid:23)(cid:18)(cid:19)(cid:18)(cid:23)(cid:18)(cid:17)(cid:22)(cid:1)(cid:9)(cid:20)(cid:16)(cid:17)(cid:24)
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95
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OUR MISSION:
To sustain life and improve economic prosperity by safely
and reliably delivering Earth’s most essential resources to
our customers and communities.
OUR VALUES: INTEGRITY RESPECT EXCELLENCE
Christopher H. Franklin
Chairman, Chief Executive
Officer and President
Essential Utilities, Inc.
Director since 2015
Elizabeth B. Amato
Former Executive Vice President and
Chief Human Resources Officer
United Technologies Corporation
Director since 2018
David A. Ciesinski
President, Chief Executive
Officer and Director
Lancaster Colony Corporation
President, T. Marzetti Company
Director since 2021
Christopher H. Franklin
Chairman, Chief Executive
Officer and President
Colleen M. Arnold
President
Aqua
BOARD OF DIRECTORS
As of December 31, 2023
Daniel J. Hilferty
Chairman and Chief
Executive Officer
Comcast Spectacor
Director since 2017
Edwina Kelly
Senior Principal
Canada Pension Plan
Investment Board
Director since 2021
Ellen T. Ruff
Former President
Duke Energy Corporation
Director since 2006
Lee C. Stewart
Private Financial Consultant
Director since 2018
W. Bryan Lewis
Vice President and
Chief Investment Officer
United States Steel Corporation
Director since 2022
Roderick K. West
Group President,
Utility Operations
Entergy Corporation
Director since 2023
OFFICERS
Michael A. Huwar
President
Peoples
Christopher P. Luning
Executive Vice President
General Counsel
Matthew R. Rhodes
Executive Vice President
Strategy and Corporate Development
Robert A. Rubin
Senior Vice President
Chief Accounting Officer
Daniel J. Schuller
Executive Vice President
Chief Financial Officer
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which generally include words such
as “believes,” “expects,” “intends,” “anticipates,” “estimates” and similar expressions. The Company can give no assurance that any actual or future results or events
discussed in these statements will be achieved. Any forward-looking statements represent its views only as of today and should not be relied upon as representing its
views as of any subsequent date. Readers are cautioned that such forward-looking statements are subject to a variety of risks and uncertainties that could cause the
company’s actual results to differ materially from the statements contained in this release. There are important factors that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements including the factors discussed in our Annual Report on Form 10-K and our Quarterly Reports
on Form 10-Q, which are filed with the Securities and Exchange Commission. For more information regarding risks and uncertainties associated with the Company’s
business, please refer to the Company’s annual, quarterly and other SEC filings. The Company is not under any obligation — and expressly disclaims any such obligation
— to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
2023 Annual Report | 89
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Essential Utilities, Inc.
762 W. Lancaster Avenue
Bryn Mawr, PA 19010
NYSE: WTRG
877.987.2782
www.Essential.co
Printed on paper certified by the Forest Stewardship Council to be harvested in a socially and environmentally responsible way.
The FSC oversees the responsible management of over 170 million acres of forestland in the U.S. and Canada.
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