American States Water Company

Ladies and gentlemen, thank you for standing by. Welcome to the American State Water Company conference call discussing the company's first quarter 2020 results. The call is being recorded. If you would like to listen to a replay of this call, it will begin this afternoon at 5 p.m. Eastern Time and run through Tuesday, May 12, 2020, on the company's website, www. ASWater.com. The slides that the company will be referring to are also available on the website. This call will be limited to an hour. Presenting today from American States Water Company is Bob Sproul, President and Chief Executive Officer, and Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements intended to qualify for the safe harbor from liability established by the Private Security Litigation Reform Act of 1995. Please review a description of the company's risk and uncertainty in our most recent Form 10-K and Form 10-Q on file in the Security and Exchange Commission. In addition, this conference will include a discussion of certain measures that are not prepared in accordance with generally accepted accountant principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I will turn the call over to Bob Sprouse, President and Chief Executive Officer of American States Water Company.

Thank you, Kate. Welcome, everyone, and thank you for joining us today. I'll begin with an update on our COVID-19 response, then discuss some highlights for the quarter. Eva will review some financial details, and then I'll wrap it up with some updates on regulatory filings, American States Utility Services, or ASUS, and dividends, and then we'll take your questions. As the United States has responded to the COVID-19 pandemic, and despite shelter-in-place requirements, customers of Golden State Water and ASUS continue to receive the same high-quality, uninterrupted water, electric, and wastewater services. The health and safety of our customers and employees is, as ever, our first priority during this unprecedented time, and we have taken the necessary steps to protect both. In terms of the effects on our business, Like many utilities, we are making special accommodations for our customers in this uncertain time, including suspending service disconnections for nonpayment through April 2021 and waiving fees and deposit requirements for affected customers. Through our emergency response planning, we were well prepared to enable many of our employees to work remotely and have made other adjustments as needed until restrictions begin to ease. In terms of the financial impact of COVID-19 on the company, the California Public Utilities Commission, or CPUC, has authorized Golden State Water Company to activate a catastrophic event memorandum account to track incremental costs incurred as a result of our COVID-19 response for future recovery. So at this point, we don't expect a significant earnings impact on Golden State Water. Ivo will discuss the company's liquidity later in the call. Similar to our regulated businesses, our water and wastewater services performed on military bases by ASUS are deemed essential services, and as such, ASUS has not experienced any significant disruptions to operations. As a result, we do not expect there to be a meaningful impact to its earnings either. Regarding our first quarter results, I'm pleased to report that the company had another solid quarter of earnings. Consolidated earnings were $0.38 per share, a $0.03 per share increase over last year, or 8.6%. Despite an $0.08 per share reduction in earnings, from the company's investments held to fund a retirement plan due to the volatility in the financial markets during this pandemic time. For a utility subsidiary, Golden State Water Company, both the water and electric segments earnings increased $0.03 per share. One of the many effects of the COVID-19 pandemic has been increased volatility in the financial markets. which for the company resulted in a $2.4 million pre-tax loss incurred during the first quarter of 2020 on investments held to fund one of the company's retirement benefit plans compared to a pre-tax gain of $1.5 million during the first quarter of 2019, decreasing earnings by 8 cents per share as compared to the same period in 2019. Excluding this item, The water segment's earnings would have increased 11 cents per share, as compared to the first quarter of 2019, due largely to new rates authorized by the CPUC. In May 2019, the CPUC issued a final decision on Golden State Water's water general rate case, which determined new rates for the years 2019 through 2021. with rates retroactive to January 1, 2019. As a result, Golden State Water recorded the impact of the final decision in the second quarter of 2019, including earnings of $0.08 per share that related to the first quarter of 2019. We continue to invest in the reliability of our water and electric systems During the first quarter, we spent $23.2 million in company-funded capital expenditures. The water utility segment continues with its construction program. However, we have tried to avoid construction projects that would temporarily shut off water to customers. The construction programs for Golden State Water's electric segment have not been negatively impacted. We estimate we'll spend to $130 million for the year, barring any delays resulting from changes in Golden State Water's capital improvement schedule due to the COVID-19 pandemic. This would be about three and a half times our expected annual depreciation expense. I will now turn the call over to Eva to review the financial results for the quarter.

Thank you, Bob. Hello, everyone. Let me start with our first quarter financial results on slide 8. Consolidated earnings for the quarter were $0.38 per share compared to $0.35 per share for the same period in 2019. As Bob mentioned, the first quarter results included a $2.4 million pre-tax loss on investments held to funds a retirement plan as compared to $1.5 million in pre-tax gains in Q1 of last year, resulting in a decrease in earnings of $0.08 per share compared to the same period last year. In addition, water and electric revenues for the first quarter of 2019 were based on 2018 and 2017 authorized rate, respectively, due to delays in receiving final decisions on both the water and electric generate cases. The final decision for the water rate case was received in May 2019, and as a result, we recorded the impact of the final decision for the water segment in the second quarter of 2019, which included earnings of $0.08 per share that related to the first quarter of 2019. Similarly, the final decision for the electric rate case was received in August last year and will record the impact of this final decision for the electric segment in the third quarter of 2019, including earnings of $0.02 per share that related to the first quarter of 2019. The decrease in earnings for the quarter at ASUS was due to higher costs incurred on certain capital projects as well as higher legal and outside service costs, which tends to fluctuate from period to period. Consolidated revenue for the first quarter increased by $7.4 million as compared to the same period in 2019. Water revenues increased $6.7 million due in part to new water rates approved by the CPUC. which became effective January 2020, Golden State Water received a full second-year step increase for 2020 as a result of passing the earnings test. Also, as mentioned earlier, water revenues for the first quarter of 2019 were based on 2018 adopted rates due to the delay in receiving a final decision on the water generated. There were also revenue increases related to CPUC-approved surcharges to recover previously incurred costs. Electric revenue were $400,000 higher due to new rates approved by the CPUC effective January 1, 2020. In addition, revenues for the first quarter of 2019 were based on 2017 adopted electric rates. also due to CPUC's delay in issuing the final decision. The $300,000 increase in contracted services revenue for the first quarter was largely due to increases in construction work performed as compared to the same period in 2019. Turning to slide 10, our water electric supply costs were $21 million for the quarter. slight increase of $200,000 from the same period last year. Any change in supply costs, as we mentioned before, for both the water and electric segments as compared to the adopted supply costs are tracked in balancing accounts. Looking at total operating expenses, excluding supply costs and surcharges, consolidated expenses increased $1.3 million as compared to the first quarter of 2019 due to an increase in administrative and general expenses because of higher labor and outside service costs and maintenance expense due to unplanned maintenance activities at the water segment. Maintenance expense expects to level off during the remainder of this year. These increases were partially offset by a decrease in depreciation expense, which was due to lower composite rates at the water segment approved in the May 2019 CPUC decision on the water generate rate. The lower new composite rates were not recorded during the first quarter of 2019 pending receipt of the final decision. Interest expense, net of interest income, and other increased by $3.7 million due primarily to losses incurred on investment held in a trust to fund a retirement benefit plan as a result of recent market conditions as compared to gains generated during the first quarter of last year, as we mentioned earlier. Slide 11 shows the ETS bridge. comparing the first quarter this year with the same quarter of 2019. Turning to liquidity on this slide, net cash provided by operating activities was $15.7 million as compared to $29.4 million in 2019. There was a decrease in cash flow from accounts receivable from utility customers due to the suspension of service disconnection to customer for non-payment during this special time. Any better expense incurred in access to what is in our water and electrical revenue requirements as a result of the impact caused by the COVID-19 response is tracked in a CPUC-approved catastrophic event memorandum account for future recovery. As a result of the catastrophic event memorandum account, Costs incurred in response to the COVID-19 pandemic, including bad expense, are not expected to materially impact water and electric earnings. There were also decrease in cash flow resulting from the timing in billing off and cash receipt for construction work at military bases during the first quarter. Golden State Water invested $23.2 million in company-funded capital projects during the first three months of 2020. As Bob mentioned, we still anticipate Golden State Water's company-funded capital expenditure to be at a range of $115 to $130 million, barring any delay caused by COVID-19. In March of 2020, American States Water amended its credit facility, increasing the borrowing capacity to $260 million through the end of 2020, at which point the borrowing capacity will revert to $200 million. We plan to issue a long-term debt at Golden State Water later in 2020. In addition, we have entered into a commitment letter with the bank to establish a revolving credit facility up to $50 million for our electric segment effective June of 2020 for a period of three years. At this time, we do not expect American State Water to issue additional equity. With that, I turn the call back to Bob.