Essential Utilities (NYSE:WTRG) reported second-quarter 2026 GAAP earnings of $0.37 per share, compared with $0.38 per share in the prior-year quarter, as higher regulatory recoveries and water volumes were offset by lower gas volumes, increased operating expenses, depreciation and interest costs.
Excluding approximately $0.01 per share of merger-related expenses, the company reported adjusted non-GAAP earnings of $0.38 per share. Chairman and CEO Chris Franklin said Essential remains confident it can achieve its target of 5% to 7% annual earnings-per-share growth, using 2024 adjusted earnings of $1.97 per share as the baseline.
Quarterly Earnings Drivers
Those gains were partly offset by $0.02 per share of higher operating expenses, a $0.02 impact from lower gas volumes, and $0.06 of other costs. The latter category included $0.03 from increased depreciation and $0.03 from higher interest expense and lower allowance for funds used during construction, or AFUDC.
Operating and maintenance expenses rose about $5.1 million, or 3.5%, from a year earlier. Schuller attributed the increase primarily to higher employee-related costs, including merit increases and medical claims, along with greater water and wastewater production costs and expenses associated with newly acquired customers.
The increase was partly offset by lower insurance expense due largely to an insurance recovery, reduced gas-segment bad debt expense, and lower customer-assistance surcharge costs. Excluding merger-related costs, operating and maintenance expenses increased 2.6%, which Schuller said was in line with the company’s historical norms.
American Water Merger Advances
Franklin said Essential has received regulatory approvals for its planned merger with American Water in Kentucky, Ohio and Virginia. The company continues to expect the transaction to close during the first quarter of 2027.
Proceedings are continuing in the remaining jurisdictions. Essential has reached a settlement in principle in Texas, while public input hearings in New Jersey are scheduled for August. Testimony was filed in North Carolina at the end of the prior week, and the Illinois matter is before an administrative law judge with a statutory process scheduled to conclude by November.
In Pennsylvania, the companies remain in negotiations with parties while evidentiary hearings are underway. Franklin said the administrative law judge’s timing in issuing a recommendation could affect the closing schedule, but he characterized the current first-quarter 2027 expectation as “comfortable” based on known timelines.
“Things have gone largely according to plan,” Franklin said, while noting that regulatory approvals involve negotiations with different stakeholders across multiple states.
Essential is also conducting integration planning with American Water. Franklin said employee collaboration between the companies has exceeded his expectations and that the combined organization is intended to begin operating as a “world-class organization” immediately following closing.
Infrastructure Spending and Regulatory Pipeline
Essential invested $662 million in regulated water and natural gas infrastructure during the first half of 2026 and remains on track to spend a record $1.7 billion for the full year. Franklin said the investments are intended to improve service, reliability, safety and regulatory compliance.
The company finalized rate cases or surcharges representing $56.6 million in annualized revenue during 2026 through the second quarter, with about 78% coming from water and wastewater operations. Its water and wastewater segment has five rate cases and one surcharge proceeding pending, representing roughly $79.7 million in requested annualized increases.
Essential’s Pennsylvania natural gas subsidiary has a base rate case pending that seeks $163.2 million in additional annual revenue. The company plans to file its next Aqua Pennsylvania water rate case around year-end.
Franklin said Essential delayed the Aqua Pennsylvania filing amid several ongoing regulatory matters, including the merger proceeding and the Peoples Natural Gas rate case. He described the anticipated water filing as largely driven by capital investment and said the company expects to follow its usual process while considering positions raised by Pennsylvania’s Governor’s Office on energy affordability.
Schuller said approximately 55% of Essential’s Pennsylvania capital spending for 2026 is eligible for recovery through the distribution system improvement charge, or DSIC. Franklin said the company will continue advocating to expand the DSIC mechanism to cover additional capital items.
Acquisitions, Dividend and Outlook
Essential completed the acquisition of Integra Water LLC for $4.9 million, adding approximately 1,100 customers in Texas. The company also has signed agreements to acquire small systems in Pennsylvania, Texas, North Carolina, Virginia and New Jersey.
Including those signed agreements, Essential expects to add about 200,000 customers for a combined purchase price of approximately $282 million. That figure includes the DELCORA transaction, whose progress remains stalled by a federal bankruptcy court stay related to the City of Chester’s bankruptcy.
Franklin said the DELCORA agreement remains fully enforceable and assumable by American Water, and Essential does not expect the proposed merger to negatively affect its pursuit of the transaction. The company’s potential municipal water and wastewater acquisition pipeline stands at approximately 400,000 customers.
Separately, Essential’s board approved a 5.25% increase in its quarterly cash dividend. The dividend is payable Sept. 1, 2026, to shareholders of record as of Aug. 11, 2026.
Looking ahead, Schuller said Essential expects its effective tax rate to remain in the low single digits for the full year, generally below 5%. He also said a previously disclosed one-time item remains expected later in 2026 and should benefit earnings. The company has experienced higher fuel costs across its fleet and equipment base amid developments in the Middle East, which Schuller said have been incorporated into current results.
About Essential Utilities (NYSE:WTRG)
Essential Utilities, Inc, formerly known as Aqua America, is a publicly traded water and natural gas utility holding company. Through its regulated water and wastewater subsidiaries, the company provides essential water services to residential, commercial and industrial customers. In addition, Essential Utilities delivers natural gas distribution services in Pennsylvania through its Peoples Gas subsidiary, offering integrated utility solutions under a unified corporate framework.
The company traces its roots to the Philadelphia Suburban Water Company, founded in 1886 to serve growing communities outside Philadelphia.
