Please stand by. We're about to begin. Good day, and welcome to the Aqua America's Quarter One 2019 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Brian Dingerdissen. Please go ahead, sir.
Thank you, Katrina. Good morning, everyone, and thank you for joining us. If you did not receive a copy of the press release, you can find it by visiting the investor relations section of our website at aquaamerica.com. The slides that we will be referencing in a webcast of this event can also be found on our website. As a reminder, some of the matters discussed during this call may include forward-looking statements that involve risk, uncertainties and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements. Please refer to our most recent 10-Q, 10-K, and other SEC filings for a description of such risk and uncertainties. During the course of this call, reference may be made to certain non-GAAP financial measures.
A reconciliation of these non-GAAP to GAAP financial measures is posted in the investor relations section of the company's website. Presenting today are Christopher Franklin, Aqua America's Chairman and Chief Executive Officer, and Dan Schuller, Executive Vice President and Chief Financial Officer. After the presentation, we will open the call up for questions. At this time, I'd like to pass it over to Christopher Franklin.
Thanks, Brian, and thank you everyone for joining us this morning. Most of you know this is an exciting time for the company. Now that we have the transaction financing in place and the integration work well underway, our focus on completing the regulatory approvals in Pennsylvania is foremost for us. We remain optimistic that we'll reach a settlement with the parties, and that we'll close this transaction by midyear. This will be a transformative acquisition and is occupying a great deal of management's time and attention. It's important to note, though, that despite that attention on the transaction, our core water business is coming off of a record year in compliance, capital spending, and in safety in 2018. That strong momentum is continuing into 2019.
Today, we'll provide some updates on the Peoples transaction and also review some of the recent financial results, as well as other salient issues at the company. In the first quarter, we reported solid financial results. Revenue rose 3.5% over last year's first quarter. We invested $134 million in infrastructure to improve pipes and plants in the communities we serve. Dan will go into a little more detail in the financial results in just a few moments. We're also on track for another strong year of municipal acquisitions. I'll review the list of signed acquisitions, which will bring us over $100 million in rate base and another 19,000 in customers this year. Additionally, our pipeline for potential acquisitions that we're actively pursuing totals over 400,000 customers at this point, we're very excited about the pipeline at this point.
Two of the biggest milestones before closing the Peoples transaction were regulatory approval and financing. Financing is now complete, we've made large strides towards our regulatory approvals. On the regulatory front, we filed for approval in Pennsylvania, West Virginia, and Kentucky, you'll recall back in November. We received formal approval in Kentucky in March, from West Virginia in April. In Pennsylvania, we received direct testimony from the interveners in April and initiated settlement discussions after that. Just this week, we submitted our rebuttal testimony and are in the final stages now of settlement discussions in Pennsylvania. For our equity and debt offerings, we experienced really strong demand from our investors. During the offering, we received requests for more than four times the available common shares and four times the TEUs, the demand for our debt was five times oversold.
Dan will take you through the formalities around that in just a few moments as well. I also want to point out late-breaking news in North Carolina. Both houses of the legislature have now passed a bill that will allow us to use something we call a CAM or a Consumption Adjustment Mechanism. Essentially, it's a mechanism that establishes the ability for the North Carolina Commission to put a collar around consumption with a true-up mechanism that if consumption is higher or lower than the collar, then there's a true up. That's a nice step forward in a world of water utilities, where, as you know, consumption continues to fall at a pace of about 1% a year. With that, let me turn things over to Dan.
Thanks, Chris. Good morning, everyone, thanks for joining the call. Now, on slide seven, you'll see the reporting non-GAAP numbers again this quarter, which adjust for the impact of the Peoples transaction. We reported revenues of $201.1 million in the first quarter of 2019, up 3.5% compared to $194.3 million in the first quarter of 2018. Operations and maintenance expenses were $79.3 million in the first quarter, compared to $73.9 million in last year's first quarter. Moving on to GAAP net income, which includes items related to the Peoples transaction, we reported $16.9 million, compared to $50.8 million in the first quarter of 2018. GAAP earnings per share, including Peoples-related expenses, were $0.09 in the first quarter, compared to $0.29 last year. When adjusted for Peoples-related charges, income was down 2.2% from $50.8 million to $49.7 million.
On an adjusted basis, you can see on the bottom row of the table, income was down 3.4% to $0.28 per share from $0.29 per share in the first quarter of 2018. Let's move on to the revenue waterfall on Slide 8. Breaking down this 3.5% revenue increase, you'll see that rates and surcharges were the biggest contributor at nearly $5 million. Next, regulated growth, which includes acquisitions as well as organic growth, added $3.1 million to revenue. Other items added approximately $1 million. Revenue from market-based activities increased by about $70,000. Consumption was lower by $2.2 million in the first quarter, to Chris's point about falling consumption a few minutes ago. Next, let's review the O&M waterfall on Slide 9. Operations and maintenance expenses were $79.3 million for the first quarter, compared to $73.9 million in the first quarter of 2018.
Other expenses reduced O&M by $4 million, which was driven in part by lower insurance claims. The largest drivers, though, were costs from the Peoples transaction, which increased O&M by $6.6 million. Walking through the other drivers, regulated acquisitions added $972,000 of expense. Production expenses increased O&M by $744,000. Employee-related costs increased by $638,000, and finally, expenses from market-based activity increased by $376,000. Excluding the transaction costs, O&M would've been down for the quarter. Next, let's review the drivers of EPS on Slide 10. In walking through the EPS waterfall from left to right, you can see that increased rates and surcharges, regulated growth, and lower expenses increased EPS. MBAs, market-based businesses, and other, which includes depreciation, interest, and tax repair. Those, as well as consumption, were negative, bringing the adjusted earnings per share before transaction-related charges to $0.28 per share.
Including the two charges from the Peoples acquisition, a market-to-market adjustment on the interest rate swap, and other transaction and financing fees, those together reduced EPS to the GAAP EPS of $0.09 per share. As I mentioned last quarter, we executed a 10-year and 30-year interest rate swap to hedge the underlying interest rate risk associated with financing the transaction. At the time, we believed that interest rates would rise. Swap rates continued to trend downward between 12/31/2018 and 12/31/2019, however, and thus, we have a non-cash market-to-market charge for 03/31/2019. Fortunately, the lower interest rates also resulted in lower than expected interest costs for the permanent debt that we issued, which would benefit all the shareholders for the lives of the 10- and 30-year bonds. So far in 2019, we've completed rate surcharges in Illinois, Ohio, and Pennsylvania totaling annualized revenue of $4.9 million.
In 2018, we filed our first rates in Pennsylvania since 2011. In February, we filed a settlement with the PAPUC stipulating to $47 million in additional annual revenue, which is expected to go under rates or approximately 65% of our initial ask. The administrative law judges reviewed the settlement and have recommended approval. Settlement is currently awaiting approval by the PUC, the commission themselves. This is a significant rate case because it includes more than $2 billion in capital spent since the last case, more than 20 acquisitions, and is Aqua's first case to include the fully projected future test-year mechanism, which reduces regulatory lag between rate cases. Additionally, the company currently has rate or surcharge proceedings pending in New Jersey, North Carolina, and Ohio, collectively totaling $6.3 million. The timing and extent to which rate increases may be granted by the regulatory agencies will vary by state.
On the next slide, I'd like to give you a refresher on Peoples Pennsylvania rate case. While we're not leading this case currently, we know this case is important to you as it is to us. Peoples filed this Pennsylvania rate case in January. They requested $94.9 million in annual revenue, and the proceedings are still ongoing. The case includes the fully projected future test-year mechanism I mentioned a moment ago. The case is the first to consolidate the Peoples and Equitable divisions and supports the largest infrastructure rehabilitation program in the company's history. We don't own the company yet. We're starting to evaluate a repair tax election at Peoples, something that many gas utilities in the U.S. have implemented. We certainly see how it could be beneficial for our customers, allowing us to stay out of rates longer and ultimately have lower rates.
We're early in the analysis, so we'll keep you posted on upcoming calls. Next, let's move to a new topic. I'd like to discuss our recent equity and debt offerings. Slide 13 summarizes the sources and uses of the funds. In addition to the $750 million of equity we raised in the PIPE with CPPIB, our public equity offering raised another $1.29 billion through a common stock issuance. We also issued $690 million of tangible equity units. As I just mentioned, we also issued debt to fund the transaction. In total, we issued $900 million of strong investment-grade debt, targeting an FFO to debt of 12%-13%. As you may have seen, the size of the financings was largely in line with the original expectations we set.
There are a few things I'd like to point out. Number one, we had approximately $314 million of debt that needed to be refinanced due to a line of business covenant, which would've been triggered at closing. Number two, in addition to the $314 million of refinancing, the $900 million issuance included $436 million for the transaction itself and $150 million for CapEx and other purposes. Finally, number three, we raised a bit more equity than previously expected to account for the transaction expenses, including the settlement of the interest rate swaps. Now we've raised all the capital that we need to fund the transaction. You'll recall that we secured a $5.1 billion acquisition bridge facility commitment in October 2018 to backstop the financings of the Peoples acquisition.
As a result of the completion of the secondary public offerings of equity and debt in April, the bridge loan commitment was reduced to $750 million, backstopping only the CPPIB PIPE at this point. On slide 14, I'd like to talk in a little more detail about the recent debt financing activity. On April 26th, the company completed its first public offering of debt. Previously, the company had only utilized private placement debt. In this offering, the company issued $900 million of 10-year and 30-year senior notes at a weighted average yield of 3.96% and a weighted average maturity of 21 years. Rating agency press releases indicate that these senior unsecured notes received or will receive strong investment-grade credit ratings of triple B plus or better from S&P and Baa2 stable from Moody's.
In completing this offering, the company was able to lock in long-term financing at a rate which is lower than we expected when the Peoples transaction was announced in October. While the first quarter of 2019 earnings were impacted by the $34.8 million charge or change in the mark-to-market fair value on the interest rate swaps, the swaps were settled on April 24th. This settlement resulted in a payment by Aqua of $83.5 million as compared to the March 31st, 2019 fair value of $94.6 million. In the second quarter of 2019, a beneficial change in fair value of $11.1 million will be recorded as income. As noted earlier, despite the settlement payment, the lower than anticipated interest rates on the long-term debt are ultimately beneficial for our shareholders. With that, I'll hand it over to Chris.
All right. Thanks, Dan. Let's take a look at slide 16 now. You've seen some of these details before, and it shows that our municipal acquisition activity, in 2018 and 2019. In 2018, we acquired six systems with $100 million in rate base. Add to that in the blue box there, the Tredyffrin pipeline for another $28 million. Our pipeline of signed acquisitions has another $100 million in expected rate base that we expect to close this year, 2019. While I've not signed any new municipal deals since our full-year earnings call, we do see a strong pipeline of opportunities which we continue to pursue. I'll go over a little more detail on the next slide. As a reminder, each $100 million in rate base translates into about $5 million in incremental annual earnings.
On top of that, most of these systems will need continual capital investment going forward, many of them to fix things that have been under-capitalized in the past. On slide 17, we put this slide together during the offering. It shows a high-level overview of the acquisitions that we're currently pursuing. Our current opportunity set has grown now to about 400,000 customers, as you can see. We currently have some opportunities with municipalities that are even larger than 50,000 customers, then many smaller but still significant opportunities. This is very encouraging. While we don't expect to close all these deals or expect them all to come to fruition, we do think that it's important to show that the opportunity set is large and the size of the deals are increasing in size as well.
Success in even acquiring a subset of these municipals would represent significant growth for the company. Let's just spend a minute or two on the Peoples transaction. As a quick reminder on page 17 or slide 17, you can see the company's three-state footprint and some details on the company's large-scale infrastructure replacement program and strong 8%-10% rate base growth that we expect. Also important to note on this page is that Peoples is 98% regulated, focused almost entirely on natural gas distribution. Over the years, we've talked a great deal about our nation's deteriorating water infrastructure and the huge need for investment. Here you can see the situation at Peoples is similar. While some gas LDCs started their replacement programs many years ago, Peoples is still in its early stages.
For example, Peoples has over 3,000 miles of what we call at-risk pipe that needs to be replaced and amounts to about 150 miles of pipe that needs to be replaced every year for the next 20 years. We see this as a 15-20-year opportunity to improve safety and reliability while growing rate base at a significant pace. On the next slide, as Dan mentioned, Peoples is in for a PA rate case. Slide 21 here, it details how we also have the ability to earn a return while minimizing regulatory lag between rate cases by using various mechanisms such as the DSIC. The majority of the infrastructure spending that we showed on the previous slide will be recoverable through the DSIC and other mechanisms. In fact, approximately 70% of the Peoples' 2019-2021 CapEx budget is eligible for these mechanisms.
When you think about this, it compares favorably to even the water business, where just about 50% is eligible for the DSIC. Peoples' DSIC for gas is currently capped at 5%, but we expect to request that the PAPUC raise that to 7.5% in the near future, as other Pennsylvania gas LDCs have already done. On slide 22, you can see the steady progress we've made toward closing since the announcement back in October. We promptly filed for approvals in November and in the three states. As I've mentioned before, we've received the Kentucky and West Virginia approvals in March and April. At the end of March, we announced a $750 million investment with the CPPIB, which we view as the beginning of a very constructive relationship.
In April, we successfully completed the equity and debt offerings to finance the transaction. As you can see, most of these items on the timeline are now complete. We remain optimistic that we'll receive final regulatory approval in Pennsylvania later this quarter. Assuming we reach settlement with all the interveners, we'll close the transaction in mid-year. Additionally, we began integration planning back in October, when we announced the transaction. That is progressing very smoothly. To conclude, let's talk about our 2019 guidance. I want to reaffirm our 2019 earnings guidance of $1.45-$1.50 of adjusted earnings per share. As been our practice, we don't typically provide guidance when we have significant regulatory proceedings before the Public Utility Commissions. We hope to provide longer-term guidance than we have in the past after we close this transaction and complete the Peoples Pennsylvania rate case.
Also our analysis of the repair tax use or the potential repair tax use at Peoples. As we've discussed with many of you before, we hope to get something that includes a three-year guidance pace by the end of the year. To review today's call. 2019's been a very eventful year for us and an important time in the company's history. We're progressing towards the closing of the Peoples transaction and regulatory approval's on track and the financing complete. In the coming weeks, you'll see an announcement about our new organization and the new company name. At least the holding company name will hold Peoples and Aqua at the subsidiaries. We have new rates going into effect in May in Aqua Pennsylvania.
This is the first increase since 2011. Importantly, momentum is continuing in our acquisition program with a strong pipeline for 2019 and the coming years. Finally, our infrastructure investment is on pace for another record year. With that, I will open it up for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question comes from Ryan Connors with Boenning & Scattergood. Please go ahead.
Great. Thanks for taking my question. I think you've covered the Peoples stuff pretty exhaustively. I wanted to actually spend a few minutes on the municipal acquisition front. The one thing, slide 17's interesting. You talk about a 400,000 connection pipeline, which is a pretty significant number. Can you break that down by state or at least call out some of the big ones? I assume PA is obviously big, but can you give us any quantification on how that breaks out geographically?
Ryan, thanks for the question. I'd love to, for obviously competitive reasons, that's difficult for us to do. I will say that it's broadening. While we still see a lot of opportunity in Pennsylvania and Illinois, the opportunity set is broadening to the other states. As we see fair market value in those other states, we have increased activity. Just difficult for me to break it down or give you names at this point.
Sure.
Hopefully you'll see some things in the relatively near future.
Fair enough. Now, you've got a track record of kind of favoring deals in areas with more vibrant economies, with better organic customer growth. I noticed that more than three-quarters of that pipeline is now in these larger, presumably cities above 50,000, which sometimes can skew away from that type of opportunity. Can you talk about what kind of parameters you have and metrics around discipline to make sure that you're maintaining a sustainable portfolio in terms of affordability and those sort of things?
Great question. Interestingly, the last two days, we were in Richmond, Virginia, with our board reviewing operations and then holding the annual shareholder meeting and the board meeting. Our speaker we brought is a gentleman named Manny Teodoro, who is a Texas A&M professor. Also, his specialization is water rate affordability. So we are focused not only at the management level, but also at the board level on water and wastewater affordability, rate affordability. Soon, we'll also be focused on gas affordability as well. Ryan, we look very carefully at when we purchase systems, and we've had this conversation many times, that the capital needs and the purchase price, when it's translated into rates, remain affordable for the demographics of the areas that we serve. We're not going to lose focus on that. It has to be holistically a positive transaction for customers and shareholders.
That's a very healthy conversation, particularly with elected officials, to talk about the balance of purchase price and rates. Thanks for raising it.
Okay. I guess related to that, in Pennsylvania, you're now having to include these bill inserts where you notify existing ratepayers of and having to actually quantify a potential rate impact. Obviously, that's something that the industry fought, and I guess part of that was due to the cost and the admin associated with that. Presumably, there's also an idea that that could trigger some kind of grassroots opposition to some of these transactions. Can you just talk about that customer notification side, which is new, and how you see that impacting the market, if at all?
Yeah. Now the companies are required to notify all customers when we acquire a new municipal system, that we've done our first one of those recently. We sent it out with our customer bill, we do it over time, trying to do it in the most cost-effective way. You're right, it could be a great expense if you were to do a direct mail to customers' homes. In that work, in our first one, we've not received any pushback from customers. Customers seem to be accepting of it. Generally, I think customers understand the more of us are contributing, the more economies of scale are built, the better off we all are. It does sometimes take a little bit of an explanation. At this point, there was no feedback from our customers as a result of that mailing.
Got it. My last question, just a quick housekeeping, I guess, more for Dan. Do you plan to issue guidance for the combined entity at the time of the Peoples closing according to the same convention you've had, which is a full year EPS range?
Yeah. I guess, Brian, as we're thinking about that, really after we close the transaction and work to resolve the Peoples rate case, at this point, the way we're thinking about this is we would look to provide guidance later in the year once we've gotten through a planning cycle with the combined company. Think about that as our regular Aqua budget and planning cycle, bringing Peoples into that cycle. We'd be in a position to provide guidance. As we've said on a number of calls in different venues, we'd like to be able to provide some longer range guidance to you as the investment community.
I think importantly, just to add what Dan said, in our planning, some of what Dan's referring to there is how we think about repair at Peoples, and that's work that needs to be done. We're doing some of it, as you know. Of course, we don't own the company yet, but the engineering work on units of property, the accounting work, and then, of course, the regulatory work to see if there's a comfort at the state.
Great. Thanks for your time this morning, guys.
Thanks, Brian.
Our next question comes from Durgesh Chopra with Evercore ISI. Please go ahead.
Hey, Durgesh. How are you?
Hey, good morning. Can you hear me now? Sorry, I was on mute.
Yep. We got you.
Yep.
Just, I wanted to clarify, Dan, on the financing slide, the proceeds that you actually show there, are those gross proceeds, or are they after the financing costs? I believe it's slide 17, if I'm not wrong.
These are really the gross proceeds that you're seeing there.
Got it.
top side.
Right. From those proceeds, the way to think about what the actual cash is going to be less the financing expenses that you might have incurred.
Correct. We've rolled that into the funding needs.
Okay. I see.
Make sense?
That makes sense. The transaction cost expense, okay, I was missing that.
Yeah
Sorry, go ahead.
On the left-hand side, you should be able to do the quick math on that if you look at the number of shares issued or the number of equity units issued in that case.
Tangible Equity Units times the $50 per unit, you'll come to this $690 million you see here.
Got it.
When you include the 15% greenshoe, don't forget that when you run your math.
Yep. I think I sorted that one. In terms of this chart, I just want to ask a little bit more about the acquisition potential on the water and wastewater side. These numbers are pretty significant and large. Like the 415,000 on slide 17. Could you potentially require equity? These seems like pretty sizable deals versus where your current customer count is. Am I right?
Yeah. There's some sizable deals that are in this 415,000 that you see on slide 17. The way to think about that is, if we're doing deals of that size, we're far beyond kind of what we call our run rate over the past couple of years. There would be a time where we would need to issue equity. Given what our scale is on a combined basis, or will be on a combined basis with Peoples and the market cap, you could imagine that we'd issue that equity using an at-the-market or an ATM program rather than through a secondary offering, because it would be relatively small compared to our overall market cap.
Okay. That makes sense. My one final question, just on guidance here, Dan. When we think about when you put out the two-year guidance out, that would be fully diluted. If I'm thinking about it, you would have the units included in the denominator. Is that the right way to think about it?
Yeah. The guidance that Chris spoke of earlier really just refers to a denominator of, call it 180 million shares, which is our share count before the offering. When we provide guidance on a combined company basis, likely, as I said, kind of late in the year. Think about that, and I said late in the year, but I'll say, it's late in the year, maybe it's even into January at an analyst day. When we provide that guidance, it would be based on a full share count. It would include the equity that we've raised, the CPPIB PIPE, and on a diluted basis, we'll have to look at how the TEUs factor into that as well. We'll get to the point where we're providing guidance with that clarity around the denominator.
Okay. Thanks so much for taking my questions.
Absolutely. Thanks, Durgesh.
Thanks.
Our next question comes from Angie Storozynski with Macquarie. Please go ahead.
Thank you. I wanted to talk about this repair tax deduction, and its potential selection for the Peoples business. You are still in the midst of negotiating your gas rate case for that entity. I understand that given the circumstances, it will be different than how you elected the flow through accounting of repair tax deduction on the water side back in, I forget, I think 2012. How should we think about it?
Should I think that similar restrictions around this repair tax deduction will be applied to the ones that you have now included, or have included in your settlement in the latest rate case in Pennsylvania, i.e., that you're not going to be able to actually derive as much of a benefit from that adjustment of the effective tax rate as we saw back in the first time around on the water side, i.e., there's maybe less of an upside to the realized ROE, given that there will be some restrictions?
Yeah. Angie, we're really just starting an analysis now, we've got to go through that analysis, both on the engineering side and the financial side. We'll come back to this and provide more guidance as we do our work here. I wouldn't start to add this into your models at this point at all.
Given that you are in settlement discussions with this rate case, I would assume that that notion of repair tax deduction will be embedded in that settlement. Is that fair?
Remember, we're not really in control of the rate case at this point in time. This is the Peoples case, and they're running it, and we have some influence over that and kind of more control as time goes on here. I think about this, that there are potentially three ways to think about socializing this repair concept. Could be part of the current Peoples rate case as that continues to evolve. It could be part of the acquisition approval, or it could be a separate filing. There's some optionalities there that we see.
I think to underscore, Dan, the work that we're doing now on the engineering side, the units of property, and then of course looking at then impact to our financials, that's really the work that needs to be done before we go do our regulatory work as well. I would say, Angie, as you think about this, probably more likely to speak to the regulators toward the Peoples rate case settlement as opposed to the acquisition settlement.
Okay. Thank you.
Our next question comes from Jonathan Reeder with Wells Fargo. Please go ahead.
Hey, guys. I think you started to answer my question related to the repairs tax, but so you need Pennsylvania PUC approval to make the election. You just can't, in theory, do it after the rate case, let the benefits flow to the bottom line and come in whenever you need after that. You need their approval to do that.
I think, Jonathan, maybe the way to characterize that is, for the accounting election, that's an accounting election we would make. You're looking for some confirmation from the commission in terms of the regulatory treatment of that accounting election. Pennsylvania is a flow-through state, but whereas as we've said, we're in this evaluation process, and we'll continue to do our work, and we'll continue to keep you informed as we have these upcoming calls.
I think said simply, Jonathan, one of the reasons why we have regulatory credibility where we do business is we work with the regulators. We don't surprise. There's no surprises. That discussion is yet to take place with regulators. I think we need to do our work internally first. I think the financial community and our investors are right to be asking these questions because, for obvious reasons, it was very successful at Aqua and for not only our shareholders but our customers. They're the right questions. It's just a little early in the work.
Okay. Any sense on how long that work on the internal side is going to take? I would think it makes sense that during the merger approval, given that's imminent, that's going to be too soon and it'd be part of probably the rate case discussions like you said, but any sense how long that timeline might be?
Dan hasn't had much to do lately. I think it's fair to say if there's going to be a discussion in the context of the Peoples rate case, and that's yet to be determined, that's sometime this summer. I think you're right to think about it's not long-term work. It's a pretty sizable work product.
As I said earlier, as Chris added, the idea would be it gets incorporated into that guidance we'd be providing at really a call it an analyst day or similar event.
Absent like electing repairs, have you guys said what you think the effective tax rate is for Peoples? Is it like 25%?
I'd say we haven't done our work yet in terms of enough work to share in terms of what that combined company tax rate looks like.
Well, I'm just saying for Peoples's standalone.
Yeah. If you go to the 8-K that we filed as part of the equity offering, there's some information there that should be helpful for that, Jonathan.
Okay. A couple housekeeping items.
You'll see in there the 2018 financials for Peoples's, that'll help you get to an answer there.
Okay. Yeah, I think at that point it was at like 28%, but yeah. Okay, great. Then just a couple housekeeping ones. The $4 million of other kind of lower O&M costs, was that due to insurance claims related?
Yeah. There are a few things going on there. There were a couple one-time things last year. Then there was a lowering of insurance claims as well that's a big chunk of that. We switched insurance carriers and the old carrier, the outgoing carrier, is resolving a bunch of things that had been on the books for a while, and they're resolving those in a favorable way. We're taking that back. That contributes to that benefit that you see on the income statement there.
Okay. Then the market-based activities and other that lower by almost $0.04, what were the drivers there? It doesn't look like the Shell pipeline joint venture was anything.
No, it's a good question. I added a little more language around that one this morning. There are a few things captured there. Think of the market-based piece as being a small portion of that. Really it's increased depreciation over last year, increased interest expenses over last year. Then a little bit less in terms of tax repair benefit versus last year. Those are the bigger three items, and market-based would be less.
Okay. That makes sense. All right. Thanks for the clarity. Appreciate it.
Yeah, absolutely. Thank you.
Our next question comes from Richard Verdi with Coker & Palmer. Please go ahead.
Hey, good morning, guys, thanks for taking my questions. Just a couple quick ones here. The drop in consumption impact on revenue this quarter, I know weather usually won't impact the tail quarters. That consumption drop, was that from natural receding from more efficient appliances and so forth? Was there something else that might have fueled that consumption drop this quarter?
Yeah. It's been a trend that we've seen. Really as we look at it, we're seeing that across the states. It's not isolated to one or two. It's really the majority of the states we're seeing that lower consumption. I think we probably need to do a little more root cause on that one.
Okay. Excluding weather in Q2 and Q3, could that be a decent runway rate to move forward with for modeling purposes, excuse me, what we saw this quarter?
I'm going to try to take that yet and run with it. To your point, first quarter, less weather impact, then obviously more weather impact Second quarter, third quarter, as the cycle tends to go.
If you think about it, this is what I mentioned earlier in the call, what you're seeing here is it is 1%, which is what we're seeing on average, year in, year out, about a 1% drop in consumption rates. It's not out of the ordinary. The reason that there's never been really an impact on earnings is because we're in for rates at a fairly regular pace. Although consumption drops on average 1% a year, really the impact on earnings has not really been felt.
As you probably know, Rich, we've seen that drop in consumption on a per capita basis really since the early 1970s.
Yeah.
There's a long trend of that.
Sure. Yeah. Okay, I got it. I'm with you. Thank you, guys. Then, you got into the 1%-2% customer growth. Can you give us a sense on the timing of that? Could that maybe be more back-end loaded for 2019? Just some color on that.
Yeah. It's 2%-3% customer growth is the guidance.
Two to three. Yeah, sorry, I misspoke. Sorry.
Yep. No problem at all. Think of that as more back-end loaded in the year, just given the timing of the closing schedules, getting these things through the process.
Not to dwell on it, I might have missed it, that slide 17 with the 415,000 customer potential pipeline, I might have missed this, what's the timing on that? Is that a 24-60 month horizon, did you guys even give a timing or any sort of color on that, how could we think about that?
I would say it's difficult to put timing on these, on the other hand, I would say that these are active discussions happening today. We've talked many times about the gestation period for municipals being a protracted period of time, call that a year or two. I would say, Rich, these are in active discussions today. Wouldn't be shocked to see some in the near term, I would think you could think of some of these going out, at least from a closing standpoint, maybe out two to three years. Active today.
That's super. That's great color. Thank you, guys. I appreciate the time.
Yeah, thanks, Rich.
As a reminder, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. We'll check our next question from Greg Reiss with Centenus. Please go ahead.
Hi, guys. Can you hear me?
Yep.
Yeah.
We got you.
Just fine.
Just two quick housekeeping questions. The $314 million of debt that you guys are refinancing, what interest rate was that at?
Yeah, it's a good question. That was at just under 4.5%.
It had a line of business covenant associated with it that really limited the business to water and wastewater utilities, and the expansion to gas would've tripped that covenant. That's why it's important to bring that into the financing at this point in time. In refinancing that, even if you include the fact that there was a make whole associated with it, we're still better off from an interest cost perspective, having that refinanced as part of this 3.96% financing.
Gotcha. Makes sense. On the rate cases that you guys have outstanding for this year, first question is just the $4.9 million that you secured in Ohio and Illinois, when exactly did those rates take effect?
The 4.9 in Ohio, Illinois, I think those. We're checking our facts now.
Yeah, it's.
Those are really They're completed.
Yeah, I'm looking at the appendix here, because we included some of this work in the appendix.
That's the one where I'm looking for more.
Yeah. Those are already Yep. They've already taken effect, so Ohio was January and March. Sorry, January and February in Ohio, and then Illinois was April 1st. They've already taken effect.
Okay, great. Then, any expectation of when the remaining rate cases at 6.3 you're expecting to get orders? Is that something that happens midyear, towards the end of the year?
New Jersey, North Carolina, Ohio. Let's see. We'd expect New Jersey
New Jersey.
North Carolina midyear.
We just settled New Jersey, Dan, so.
New Jersey, we just settled.
It's a rate.
I would think it's relatively soon.
Okay.
Yeah, we can get back to you with it.
Okay, no problem. Were you able to get the repairs tax in New Jersey in the settlement?
Yeah. Real quick on New Jersey. That is 5/28, so it's late this month.
Got you. Were you able to get the repairs tax in New Jersey?
Well, we've got a settlement in place that would include repair tax in New Jersey, working on getting that kind of finalized and filed, if you will. More to come on that one.
Perfect. Thank you. That's all I had.
Yeah, absolutely.
It appears that there are no further questions at this time. Mr. Franklin, I'd like to turn the conference back over to you for any additional remarks and closing comments.
Thank you so much. I appreciate everyone's joining us. If there are follow-up questions, as always, we're always available. Thank you for joining us again today.
This concludes today's call. Thank you for your participation. You may now disconnect.