Excellent. Welcome back, everyone, to our final session of the day. We're joined with Middlesex Water Company. We got the whole team here on the line. Again, if you guys have questions, comments, ping us on email or chat, whatever you see. Again, Julien Dumoulin-Smith, Bank of America here. Maybe Dennis Doll, Chair, President, and CEO, why don't I turn it over to you here to provide some opening comments? With that, perhaps your colleagues can join in as well, but... All right. Well, thank you, Julien, and thank you, Bank of America. I know you've had a full day. We're grateful that you saved the best for last. We'll get into it in a minute. I just wanna first introduce, we have with us our Senior Vice President, Chief Financial Officer, and Treasurer, Bruce O'Connor. We also have with us Robert Capko, our Corporate Controller. Between the three of us, we've got a lot of information we're able to share, and we're looking forward to the discussion. Feel free to fire away. Excellent. All righty. Perfect. Well, again, thank you. Maybe just, in terms of kicking this off, I mean, we've talked with a lot of different companies about sort of the value proposition here. Let's talk about earnings growth and prospects on earnings and dividend growth here. I mean, clearly that has been, you know, fairly exceptional across a number of the companies in the space here. Do you wanna talk about what you're seeing out there today? I mean, clearly, smaller companies have been more impacted by the inflationary narrative of late. Just in aggregate, how would you characterize your ability to continue to see earnings growth across the space and specifically for you guys today, given some of these, you know, current headwinds, if you will, as well as ensuing dividend growth? Yeah. Well, I would assume, as most know who are on this call, that, we derive value for shareholders in various ways. One of the more significant growth drivers for our company is continued investment in utility plant and rate base. We've had a fair amount of investment in our infrastructure in recent years, more so than we've ever had in our 125-year history. That said, going forward, we still have a substantial amount of capital to invest across a variety of different parts of the company, whether it's production, distribution, technology projects, a whole host of opportunity. Clearly, opportunities in rate base puts upward pressure on customers' rates, but it's all required investment. A lot of it is being driven by regulation, both current regulations in effect and also, forthcoming federal and state regulations. That's a big driver of the rate-based growth going forward. Clearly, rate-based growth translates to earnings growth. Earnings growth gives us a greater ability to continue to increase the dividend. The focus obviously is on earnings growth. Share price, we can only control so much of that. The fundamentals obviously have to support the price, but we also know that there's a greater investment and greater interest in the water space in recent years than I've seen over my career in this industry. Obviously, growth can come from a variety of different external approaches as well. We're in the contract operations business. That's something that's incremental to the bottom line with little or no capital investment. It's perfectly manageable risk. It's just what we do as a company. We've got all those disciplines and those skills. Complementary products and services are also a key part of the operation. Obviously M&A activity as we continue to see more and more municipal governments question whether or not they should remain in the water and the wastewater business for the long term, for a variety of reasons, including, as I indicated, increasing regulation, the aging workforce, the need to be able to acquire and retain adequate and well-trained skills. All these things are contributing to more and more conversations that we're certainly having with municipal officials. It's, you know, the rate case cycle, obviously it's always a challenge, but it's something that Bruce O'Connor and his team do extraordinarily well. You build the projects. You finance the projects. You get adequate and timely rates, and you just keep that process rolling indefinitely. That's what we do. Excellent. Do you wanna talk about the rate case cycle just in light of these inflationary pressures and interest pressures? I mean, how does that drive some of the latest thinking here? We've seen across the space, something of an acceleration in recent times, just a recognition of some of these pressures and the need to perhaps accelerate those timings, relative to what had previously been contemplated. Sure. Bruce? Yeah, sure. Thanks, Dennis, and good afternoon, Julien. Just to give you a little history on our rate cycle, both in the two jurisdictions that we operate primarily, which is Delaware and New Jersey. Tidewater Utilities is our primary subsidiary in Delaware. We're up to 55,000 customers. We bought that system in 1992 with 2,800 customers, and we just continue to have significant growth down there, about 5% a year. The last base rate case we were in for Tidewater was filed in 2013, and the rates were set in 2014. We have not been in for a base rate case since then. We've taken advantage of the DSIC as much as we could up until the point where our earnings were above the authorized, where we had to suspend the DSIC in Delaware, about a year and a half ago. Right now, some of the pressures you described there, in the current inflationary market, we anticipate that we're gonna file our first base rate case, since 2013, sometime in early 2023. Looking at Middlesex, we had traditionally been on a cycle of 18-24 months, going back to the early 2000s. In our 2018 case, we actually got some very favorable treatment about the tax benefits from adopting the Tangible Property Regulations in New Jersey. We were able to extend out the lag from case to case from 2018 till we filed one in 2021 for Middlesex. We got those rates effective 1/1/202, and that was a phased rate increase with a 33% overall increase. $20 million of that increase was put in place in 2022, and the remaining $7 million is gonna go into effect on January 1, 2023. Because of the increasing spend we have on CapEx in New Jersey and some of the pressure for increased labor costs, increased materials and supply costs, and even some of the increased cost to the projects themselves, we may be coming in to file in New Jersey for Middlesex sooner than we had originally anticipated when we had settled that case at the end of 2021. I'll take a pause there. Excellent. Well, thank you so much again. I appreciate it. If I may, I mean, if you think about this sub code rate case, and obviously it's in theory contemplating numerous pressures, but also it represents an opportunity in theory to get trued up against your cost structure and earn at your authorized levels and reflect the accumulative capital investment. You know, in considering that, how do you think about the opportunity to see an earnings, you know, bump, if you will, to use a colloquial term, to reflect some of that over the next couple of years as that case resolves itself? Well, that's certainly our goal when we're filing these cases is to make sure that the money that we're investing or the expenses that we're incurring get adequate and timely rate treatment. That is the art form or the art part of rate making. You know, the engineers put together their project plans and scheduling to build infrastructure. Our job is to figure out when that's gonna line up, or when our earnings are gonna start lagging what's, what is authorized. That is our goal, is to get in for timely rate relief. I would anticipate in New Jersey filing something in 2023, we will be back to that routine cycle of 18-24 months on an ongoing basis over the next several years or through the end of this decade. Got it. Excellent. Thank you so much. I appreciate it. Maybe if we could pivot here at this point. I mean, how do you think about the underlying earned are we today and the potential, magnitude of that, jump, if you will? I mean, how do you think about, you know, in the final years of a rate case cycle, typically, that's when the pressures are greatest. Obviously, those potentially are magnified in the current environment. Can you talk about just what your current or perhaps trailing earned returns might look like, just to give some perspective on what that bump might look like? Sure. I'll give that a shot. That's certainly abstract. With Tidewater, we're actually right now, as of September, we are at our authorized or slightly above our authorized rate of return. Even extrapolating or annualizing the recent PSC ordered rate decrease for Tidewater because of those earnings, we are at our authorized level. Going in, you know, in three short months or six short months, we believe that we will have that bridge from earning our authorized return to being below it, filing for a rate increase. In Delaware, which allows for interim rates being put into place within 60 days of filing that case, we could put in interim rates subject to refund. We don't think we would lose any return with regard to Delaware because of that interim rate feature. On the Middlesex side, with the current phase, we are lagging our authorized return coming out of the case, and we knew that when we settled on a phased increase. We think for the first part of 2023, with that extra $7 million on an annual basis coming in, we think that'll get us close to our authorized return by the time we have to come in and file another case or another request for an increase in 2023. Unfortunately, in New Jersey, they don't have the interim rate feature. it's a 9-month statutory period in New Jersey for adjudicating rate cases. Historically, we've done nine months or less in getting those cases done. Because there's no interim rate relief there, it's important to try and get these cases taken care of fast. We generally settle rate cases in New Jersey. We haven't. The last litigated case we had was in 1999. Excellent. Rob, did you wanna add anything? Yeah. That's... Oh, yeah, go for it. Rob, I wasn't sure if you were gonna add something on. No, you stole my thunder. I was gonna talk about. All right. -trying to settle rate cases, sooner than later, but thanks. Sorry about that. That's okay. All righty. Excellent. Well, thank you, team. Listen, I'd love to hear what your thoughts on consolidation across the industry state, especially considering PFOA, PFAS. What opportunities exist for you as it stands today? I mean, I know we've seen some degree of pressures on this FEV mechanism, and ultimately, how do you think about that being part of the value proposition that you deliver against the backdrop of this, you know, historical 6% growth number? My view for the long term has been that consolidation, at least consolidation of municipal systems, where it appears most of the opportunity is largely driven by a problem that the municipal entity is trying to solve, a problem that they're either unwilling or unable to solve on their own. It could be something like PFAS. It could be the aging workforce. It could be all of the additional regulation that's coming. There are a number of factors that I think will further contribute to consolidation. New Jersey, in particular, there's something you may have heard of called the Water Quality Accountability Act, which has been in effect for a number of years now and is requiring municipal entities to conform to many of the same standards that us investor-owned utilities have had to conform to for a very long time. Some new things in there too, relative to asset management and cybersecurity programs and so forth. As I indicated previously, the conversations we're having with municipal governments, these are all the things that are really giving them concern about their ability to stay in the business long term. You know, I caveat that with, there are a number of larger systems across the country, based upon my involvement with several of them over the years, who are extraordinarily well-capitalized, extraordinarily well-run. They're charging appropriate rates, and they will never need to consolidate or privatize in any form because they're doing what they're supposed to be doing. It's really a matter of how much consolidation will occur based upon the problems that these individual utilities are experiencing. As we all know, there's a bit of an emotional connection to water as compared to other utilities. Overcoming that emotional connection relative to having in-house own control of that precious resource and the operation of the day-to-day management of those systems, that's something that's still a challenge for any of us in the peer group to overcome. It certainly doesn't help when you have activist groups out there who have various talking points that, frankly, in my view, are disingenuous and don't they certainly confuse constituents of municipalities about what the true benefit is of privatizing or selling to an investor-owned utility. That's a challenge we have as an industry to overcome some of that negative communication that occurs. Yeah. I certainly hear you there. Let me ask you this. Just when you think about the backdrop on this O&M and just to what extent it will persist, that's certainly been one of the key themes here is, you know, it's sort of insidious in terms of how many different ways it manifests itself and sort of its protracted nature, right? You have, you know, labor arrangements, et cetera, that may not necessarily have reset or may not reset for some time still. How do you think about this elevated pressure point? I mean, we've seen, at least with you all year to date, you know, certainly an elevated O&M trajectory. How do you think about having effectively reflected that, if you will, the pig in the python analogy? Are we through with this, or do you continue to see some of these pressures manifesting themselves? It could be other factors, right? Interest related factors such as, you know, pension or otherwise. Again, there's lots of puts and takes here. Well, I'll ask Rob to give a response relative to what we're seeing in terms of inflation and supply chain and those types of issues, and I can follow up with the bigger picture view of where I think it's going. Sure. I mean, obviously, we're no different than any other company. We are seeing that pressure on our supply costs, mainly being chemical. They're up significantly from last year. We're seeing our labor costs have increased, both in terms of our normal annual raise, and we did do a mid-year adjustment to for retainage purposes. We are seeing obviously saw our interest rates, our borrowing costs have increased significantly from the first quarter. You know, managing all this and just making sure that we get in for a rate case at a timely manner so that when, you know, that regulatory lag that they talk about is reflected in the ultimate settlement of the rate case, making sure that lag is as short as possible. Just to follow up, we, you may or may not be aware, Julien, we're a non-union shop and have been for our 125-year history. Not that we have any fundamental opposition to unions, but I believe unions are needed in many places, and there's just not one needed here. We treat our people well. We pay them competitive wages and benefits. We treat them respectfully. We support them. We create career development for them. We do a lot of training. We do a lot of things for our people that we wouldn't be able to do in a union environment. We're getting full rate recovery of all those costs. As it relates to inflation type O&M, other O&M challenges, I always come back to the regulatory compact. We are a regulated public utility. We're completely entitled to full recovery of prudently incurred capital and operating costs. Many of those costs are becoming outside of our control, largely those related to increased regulation, and some other things that are going on in the broader economy. It's unfortunate, but ultimately those costs fall to our customers' bills. As Bruce articulated a little while ago, it's really all about timely and adequate rate relief. We're entitled to recovery of those costs. The challenge is to get them into the pipeline, into the rate proceedings in a timely manner and get the appropriate recovery. You know, we're happy to have a discussion with regulators about things that are outside of our control because they all agree that there's nothing we can do about certain costs. When it comes to things we can control, then that's where we absolutely need to be held accountable for our decisions about how we're deploying capital, how we're incurring O&M costs and so forth. It's an interesting dynamic, but it does give us some comfort being in the regulated utility business as compared to some other industries which are really struggling big time. Excellent. Yep, I very much hear you, as you think about controlling the narrative and cost there. I mean, when I come back to this as well here, I mean, I wanna ask you, I mean, yeah, I know we talked a little bit about the consolidation narrative, but how do you think about consolidation amongst corporates here across the space? I mean, any thoughts or observations here? Any reasons why anything would be shifting at this point in time in particular? Well, the entire industry continues to trade at a pretty health-healthy multiple. It's all about how big a check someone is willing to write, I think, to affect consolidation. I've said publicly many times our company is not in the business of entrenching management or avoiding a sale of the company. It's really all about what's in the best interest of the shareholder. If someone writes a big enough check, all of us who are publicly traded have a fiduciary obligation to take that seriously. It's obviously got to be in the best interest of shareholders and customers, and the regulators will weigh in heavily as to whether or not there's adequate benefit for customers. We're not seeing much in the way of consolidation, certainly not at the publicly traded level. There's some, you know, at smaller regional type systems or much smaller systems than that. It's all about price in my view. No, I hear you. I mean, and social considerations as well, as you say. Indeed. Let me if I can pivot here once more. I mean, one of the other conversations that we have out there is just on capital programs, how you're looking at some of the bigger investments coming ahead. How you even think about the inflationary pressures you described a moment ago in the O&M context manifesting themselves in the form of a higher capital budget and capital revisions here. You know, have you had to consolidate projects for the sake of ensuring you meet, you know, your contemplated budgets even on this year? How do you think about that? Sure. I certainly could respond, but I'll share the limelight with Bruce here. Bruce. Thanks, Dennis. Regarding the price pressure on our capital program, certainly we are experiencing project creep in terms of pricing. I think first the good news for most of the projects that we have on the table that are active or are gonna start up soon to be active, we haven't hit any real significant delays. We're thankful for that. Yes, we are seeing a price increase for the work that the contractors are gonna be doing. Not enough to the point where we've had to reassess whether or not the project needs to get done. Our engineering group does a pretty thorough initial assessment about projects in order to get them up on our five-year program and get them, and actually, again, get them to the point where we're gonna undertake the project. They vet it for its, you know, regulatory risk, you know, failure not to do the projects, the customer risk for failure not to do the project. Unless the bids come in for a project that are just absolutely out of control, we generally are not pulling those projects and delaying them or deferring them for a great period of time. Bruce makes a very relevant point. Yes, the money matters, but it's really as much, if not more, about risk management. Certain things just have to get done. You know, when it comes to water quality and public health and protecting public health, despite the fact you might be in an inflationary environment, you've got to buy the equipment you need to be able to deliver the chemicals to the system and other types of instrumentation. It's really a combination. We go through these thought processes all the time on every project, managing the risk against the ability to finance it and to get adequate rate relief. Indeed. Do you want to talk a little bit about what the feedback has been? When you think about the size of this Rate case forthcoming, et cetera. I'm just curious, what's the order of magnitude of the inflationary impact on your customers as you think about it? And ultimately, you know, I mean, you could put that in comparison versus other utility services here. Sort of curious as obviously energy commodities have risen, there's an ancillary and derivative impact on your customer bills. I suspect that the, in the totality of what they have seen, and more importantly, what they will see through the impact of this forthcoming case is probably fairly modest. Do you wanna try to put that in summary a little bit? Well, there are a variety of. Even in context of your water peers. What we see is one of the more significant impacts is rising interest costs. We finance the capital program with short-term debt under bank lines of credit that ultimately gets taken out in a combination of debt and equity and longer-term debt. Interest costs, as we all know, are significantly higher today than they were earlier in the year. We don't break down necessarily in our next rate filing how much of that increase we believe is attributable to inflation. That would be a pretty onerous task, not to mention it may not be possible to define it in any level of detail. The reality is inflation is contributing to higher costs, which will contribute to higher customers' rates. Inflation ultimately gets under control and those rates come down, whether it be interest rates or other O&M line items, well, then the customers will get the benefit of those savings as well. It's, there's an adequate matching, I think, under the regulatory compact, but we have some work to do. Frankly, we all worry, I believe. I don't wanna speak for my peers, but I believe we all have concerns about affordability. There are certain aspects of our customer base who struggle more than others with their ability to be able to pay their water bill. There's a social aspect to it that we need to make sure that we're addressing adequately. At the same time, we also have to make sure that we're doing our best to reduce those O&M costs to the extent we can control them, which leaves that much more room to make those needed investments in utility plan. Indeed. Excellent. Thank you, team. If I may continue here, how do you think about just the regulatory backdrop in New Jersey specifically? I mean, certainly we've seen some pressure from some of your peer utilities out there, in other utility services. Do you wanna talk a little bit about the relationship that you all have here as you think about the state and the comfort level in filing here and any potential mechanisms or changes that would be anticipated through that rate case filing? Again, I think coming back to the highest levels, you know, how do you perceive that relationship here? Sure. Bruce, you wanna address that? Sure. We take great pride in the relationships that we have developed and maintained both in New Jersey and Delaware with our regulators. We have shown them that we are a forthright and a steward of the water that we provide our customers. They haven't been challenged on any of the capital projects that we have constructed over the 30-plus years that I've been with the company, both here in New Jersey and Delaware. We've demonstrated to them time and time again that the business that we're running is prudent and we strive to provide the service at the best possible, lowest possible cost. That, that's translated specifically in New Jersey, where statutorily it's a 9-month process to prosecute a rate case. Going back to probably, the last, you know, 2009, we've gotten these cases done in 7-9 months, which I don't think many of our peers can say that about the rate process in New Jersey. Rob, you wanna comment to that? Great. I agree with you, Bruce, and we're also, you know, from a, you know, developing relationships with our regulators. You know, we are asked to present at conferences. They reach out to us from time to time if they have a question on something. We really strive to keep those relationships positive. It's a, it's a naturally antagonistic, for lack of a better word, relationship, but we do as much we can, make sure that they are positive. Excellent. Wonderful. Okay, excellent. I mean, how do you guys think about expanding beyond your core geographies? I mean, obviously, you know, your namesake says it all, but, you know, how do you think about, you know, pursuing these municipal opportunities, again, not necessarily corporate, you know, outside of the core geography? I mean, we've seen this, you know, gradually playing out across the space here. I'm very curious to hear your all's perspective. Again, admittedly, whether in the context of expanding gradually into adjacent states or otherwise going to other geographies that have some of these fair market value constructs that could make acquisitions relatively more executable. Any thoughts or comments on that? I mean, we've seen so many of your peers, you know, kind of bleed into that direction. Well, we've traditionally been a regional utility, Delaware and New Jersey being the most prominent states. We've dabbled a bit in other places. We've looked at opportunities outside of New Jersey and Delaware. 10 years ago, we were getting a bit more aggressive about privatization of military bases. We came to the conclusion that some of our peers in the industry had clearly gotten to the table much sooner than we had. They had more scale, and it was going to make our ability to compete for those opportunities pretty significant. We did acquire one, Dover Air Force Base in Delaware. Admittedly, it was in our backyard, but it's a really great piece of the business now. We have also looked in other states where we look to set up shop. Frankly, at the time that we were evaluating those, they were not good opportunities. Again, in New Jersey, being so densely populated, it's only a handful of players who have the opportunities to make any meaningful strides in acquiring municipal business or even investor-owned business. It's the same in Delaware. That means our abilities to further expand our footprint in those two states, there's opportunity, but it's not dramatic opportunity. Outside of New Jersey and Delaware, we're not going to be so foolish to compete with some of our friends who we know have significant scale in particular areas where they may already providing water service or wastewater service. They've got the relationships, they've got the scale, they've got the operations. where the cost of entry in a different state, where you've got some pretty stiff competition already, frankly, is pretty high, and it wouldn't be smart from a shareholder perspective. That doesn't mean we don't have opportunity. Again, we still have significant opportunity for investment and rate base, probably some small to medium-sized municipal acquisitions, additional contract operations. As you described it up front, Julien, it's all about how do you keep that trajectory going of earnings per share and dividend growth. If that gives us enough opportunity to do that, then that's perfectly acceptable to shareholders. When it comes to fair market value legislation, I don't, I don't think the story is completely written on that. Certainly, some have had some great success in recent years. I also know there's a fair amount of growing concern, I'll call it, about the impact on customers, namely the broader customer base who's being asked to subsidize some of those premiums that are being paid under what I'll call nontraditional appraisal methods. I think the story is not yet written. Nonetheless, we have an obligation to our shareholders, and presented with the appropriate opportunity, we will be as aggressive as anyone to make a deal work under a fair market value legislation. Excellent, team. I appreciate it as always. All right. I mean, as you think about the other prospects for your business here, I mean, I know I pressed on CapEx before. Any specific new emerging areas that we should be watching that could really shift your CapEx budget here in any particular way? I mean, I know we alluded to PFOA, PFAS more so in the context of municipal acquisitions. How do you think about that just for your own investment budgets, as you think? I think a fair amount of it for the foreseeable future is gonna be driven by regulation, both at the federal and the state level. The update to the Lead and Copper Rule under the Safe Drinking Water Act in more than 25 years, that's a big one. Cross-Connection Control legislation in Delaware, lead service line replacement legislation in New Jersey, the Water Quality Accountability Act, America's Water Infrastructure Act. That's just a handful of things that we're dealing with currently and which are also emerging. When ultimately the U.S. EPA finalizes a maximum contaminant level for PFOA or PFNA. You know, their health advisory just came out at something dramatically below what it had been previously at 70 parts per trillion. That's all going to drive the need for significant investment, not just by our company, but anyone in our peer group who has similar challenges relative to those contaminants. Regulation is going to be a huge driver, I believe, of capital investment for the foreseeable future. Excellent. Well, thank you so very much, guys. Any final prospects or comments that you guys would offer here? Again, I think I've tried to hit the panoply of issues out there for you guys, but please, by all means, jump in. Dennis, any thoughts? The only thing I'll add is, as many of us in the peer group are really focused on sustainability, ESG. We've been on our ESG journey for a while. It continues to mature. We've got some great information out there. Our corporate sustainability report is on our website for anyone who might be interested. We continue to expand upon it, make it more meaningful, not only for investors, but customers, the environment. It's become a big focus for us. That's pretty much it. I'll just look to Bruce or Rob. Anything further you would like to add? Rob? No, just, you know, we continue to watch our costs, forecast out where we're, you know, where we think we're gonna be and make sure that we're in for rates in a timely manner. I'll just add that in terms of our workforce, we have a sustained effort both in New Jersey and in Delaware to attract the young population out there to come on into an industry that offers good, solid jobs at a very attractive pay scale. There is certainty in working for a utility, and that's the message we're trying to get out there I'm not sure who coined the phrase, but as the silver tsunami continues, especially in our industry, a lot of institutional knowledge leaves us every day. Despite, you know, we think we have good, solid succession plans at all levels, but at the end of the day, people are still leaving, and we're trying to attract the talent to come on, come back in or come into the industry. Excellent. Well, Bruce, maybe we'll leave it on that thought. Thank you for sharing that comment there, sir. Dennis, Robert, appreciate your all's participation in our conference. In fact, that actually concludes our annual conference, our Water on Wall Street event here, co-sponsored with NAWC. Appreciate you guys taking the time. Appreciate the opportunity to connect. I wish you guys the best. You know, if anyone wants to be put in touch, please let us know with anyone from the course of the day. Thanks, Julien, for including me. Thank you very much. All the best to you and your team as well. Thanks. Thank you. Cheers, guys.