California Water Service Group

Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the California Water Service Group's second quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Mr. David Healy, Vice President and Corporate Controller. Please go ahead, sir.

Thank you, Lisa. Welcome everyone to the 2020 Second Quarter Results Call for California Water Service Group. With me today are Martin Kropelnicki, our President and CEO, and Thomas Smagle, our Vice President, Chief Financial Officer. Replay dial-in information for this call can be found in our second quarter results release, which was issued earlier today. The replay will be available until September 30th, 2020. As a reminder, before we begin, the company has a slide deck to accompany the earnings call this quarter. The slide deck was furnished with an 8K this morning and is also available at the company's website, at www.calwatergroup.com. Before looking at the second quarter results, we'd like to take a few moments to cover forward-looking statements. During the course of the call, the company may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company's current expectations. Because of this, the company strongly advises all current shareholders, as well as interested parties, to carefully read and understand the company's disclosures on risk and uncertainties found in our Form 10-K, Form 10-Q, press releases, and other reports filed from time to time with the Securities and Exchange Commission. I'm going to pass it over to Tom to begin.

Thanks, Dave, and welcome, everyone, to our second quarter earnings call. Just as a preface, I think most of you who are on the call are aware that the major factor for the company in this quarter is really the same as it was in the first quarter, and that is that we have not received either a proposed decision or a decision from on our California general rate case, which was expected prior to January 1st of 2020. I'm going to begin the results discussion on slide eight of the deck and talk a little bit about the quarter and then on the year-to-date basis, and then go on from there. For the second quarter, start of slide eight, our net income decreased by $11.7 million to $5.3 million, and that is a difference from a $0.35 gain in the second quarter of 2019 to an $0.11 gain in the second quarter of 2020. The big factor here is that we had no rate relief from the California Commission. And we estimate that if the rate relief had come in, there's two big factors here. And it's the same two factors we talked about on the first quarter call. It's a total of $29.1 million that we believe would have been achieved, this is additional pre-tax income, if the commission had rendered a decision on a favorable basis to the company. And of that, for the second quarter, $10.9 million represents the pure delay resulting from the settlement agreement that the company filed with the Consumer Advocate Act in October of 2019. And so that is being tracked in an interim rate memorandum account for future recovery. And then $18.2 million, which represents income from our disputed cost recovery regulatory mechanisms. And those, remember, are mechanisms that we've had for many years. First of all, to decouple our sales from revenue. We'll talk quite a bit more about that later in the call. And then secondly, our regulatory mechanism for the pension and health care balancing accounts. Because those are in dispute in the case, we didn't record them as we would normally have. And had we recorded them in the quarter, we estimate an additional revenue would have been $18.2 million. Those regulatory mechanisms match up to some cost increases that we had in the quarter. We had $6.5 million of increased water production expenses, of which $5.7 million would have been offset by those regulatory mechanisms. And we had $2.1 million of increased pension benefit expenses, which also would have been offset by those regulatory mechanisms had they been in place. Other factors for the quarter. We saw a rebound in our unrealized benefit plan investment performance. That was $3 million higher than in the second quarter of 2019. And other things that happened, which would be typical of a utility company in our situation, our depreciation expense went up very similar to the first quarter. So it was up $2.2 million in the second quarter, and that's related to increased plant investments in 2019. And we did have an increase in our maintenance costs of about a million dollars. Turning to slide nine, on a year-to-date basis, very similar story and very similar explanation. The numbers are different, but the explanation is the same. So our net income decreased by 24.4 million to a loss of 15 million on a year-to-date basis. In terms of earnings per share, we have a loss of 31 cents per year to date as compared to a gain of 19 cents in 2019. Again, the two factors related to the rate case, we believe that had a rate case been adopted and it was favorable to the company on these matters, the 19.8 million representing the delay of the settlement agreement amounts and and $26 million related to our regulatory balancing accounts that we've been discussing. For the year-to-date basis, our unrealized benefit plan investment performance was $4 million lower than in the first half of 2019, and that's really due to comparatively strong market conditions in the first quarter of 2019. And other impacts on a year-to-date basis, again, very similar. We see Depreciation expense increased $4.3 million and maintenance expense increased $1.6 million. Slide 10, this is a very similar slide to what we gave you in the first quarter earnings deck. Our opinion of the estimated benefit on a full year basis from the California GRC has not changed. As shown in the table on that chart, we believe the benefit is between $38.9 and $42.2 million on an annual basis. And so we continue to expect that when we get a decision in the case, that that will be the benefit to the company. Our 2020 sales forecast. as we mentioned last quarter, are about 7% lower than the 2019 adopted sales. So in discussion of the RAM and the MCBA, we believe that we're much more likely to be closer to adopted sales than we were in 2019. And As I mentioned earlier, we would have been allowed to record additional revenue of 5.6 to 10.9 million in the second quarter if the settlement had been adopted with a low end of the revenue range linked with 5.2 million reduction in depreciation expense. So getting a little bit more granular on slide 11 on the disputed GRC items. I just wanted to point out that the two things that are the RAM and the MCBA, we believe that in the second quarter, that's about $14.9 million that would have been recorded in those balancing accounts. And the pension and medical cost balancing accounts, we believe, would have been $3.3 million. And again, we're highly confident that past amounts that are recorded in those accounts are recoverable regardless of the commission's decision on a go forward basis in our current general rate case. And the other disputed items in the rate case, we don't believe are major factors in either the second quarter or the year to date results. Pages have stopped working. I'm going to skip the EPS bridges that we have because those are described in the narrative. And I'm going to turn it over to Marty for an update on COVID-19.