Essential Utilities, Inc. (NYSE: WTRG)

Essential Utilities, Inc., often recognized by its stock symbol WTRG, operates as a holding company in the utilities industry, providing essential services such as water, wastewater, and natural gas to approximately 5.5 million people across nine states. The company's primary business activities involve providing water and wastewater services to a diverse range of customers, including residential, commercial, and industrial entities, as well as distributing natural gas to residential and commercial customers.

Essential Utilities generates revenue mainly through the sale of water and wastewater services, with water utility operations sourcing water from surface water sources, underground aquifers, and purchased water from other suppliers. The company's water treatment, pumping, and distribution facilities are designed to meet the regular needs of its customers. However, factors like drought warnings and water use restrictions imposed by governmental authorities can impact water revenues and net income.

The company's natural gas segment generates revenue by selling natural gas to its customers. Essential Utilities purchases natural gas from various intrastate, interstate, and local sources, transporting it through intrastate and interstate pipelines under contracts with terms ranging from one month to 10 years.

In terms of its position within the industry, Essential Utilities boasts a robust infrastructure network and a competitive advantage in its ability to pass through changes in the cost of natural gas to its customers. The company faces competition from other regulated utilities operating in the same states. Essential Utilities' growth strategy revolves around expanding its operations through acquisitions and organic growth, with a significant capital investment program planned for the next five years.

Essential Utilities' water utility operations serve approximately 1.9 million customers, providing essential water and wastewater services. On the other hand, the natural gas operations serve approximately 744,000 customers, offering natural gas distribution services to residential and commercial entities.

The company's infrastructure rehabilitation surcharge serves as a mechanism that enables it to pass through changes in the cost of natural gas to its customers under purchased gas adjustment provisions in its tariffs. This surcharge offsets the additional depreciation and capital costs associated with capital expenditures related to replacing and rehabilitating infrastructure systems.

In 2016, Pennsylvania enacted legislation allowing the public utility commission to utilize fair market value to set ratemaking rate bases instead of the depreciated original cost of water or wastewater assets for certain qualifying municipal acquisitions. This legislation includes a process for engaging two independent utility valuation experts to perform appraisals, filed with the public utility commission, averaged, and compared to the purchase price.

Essential Utilities uses revenue stability mechanisms to separate the volume of water sold from its ability to meet its cost of service and infrastructure costs. These mechanisms allow the company to recognize revenue based on a target amount established in the last rate case and record either a regulatory asset or liability based on the cumulative difference over time, resulting in either a refund due to customers or a payment from customers.

The company is committed to protecting the environment and the health and safety of its employees, customers, and the public. Essential Utilities integrates environmental, health, and safety requirements into planning, decision-making, construction, operations, and maintenance activities that it performs. Provision of water and wastewater services is subject to regulation under the federal Safe Drinking Water Act, the Clean Water Act, and related state laws, and under federal and state regulations issued under these laws.