California Water Service Group

Recording completed. Hello and welcome to the California Water Service Group Q1 2021 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that time, you will need to press star, then the number one on your telephone keypad. It is now my pleasure to turn today's call over to our host, David Healy, VP of Control. Please go ahead.

Thank you, Lonnie. Welcome everyone to the 2021 First Quarter Results Call for California Water Service Group. With me today are Marty Kropelnicki, our President and CEO, Thomas Magel, our Vice President, Chief Financial Officer, and Paul Townsley, our Vice President of Corporate Development and Chief Regulatory Officer. Replay dial-in information for this call can be found in our first quarter results release, which was issued earlier today. The replay will be available until June 30th, 2021. 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 first 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 Commissions. I'm going to pass it over to Tom to begin.

Thank you, Dave, and good morning, everybody. Welcome to our first quarter results call. I'm going to tie my comments to the slide deck, and I'm going to start on slide five, which is the results table and comparative 2020 to 2021. Our operating revenue for the quarter was up to $147.7 million from $125.6 million in the first quarter of 2020. And we'll talk about the reasons for that in a moment. And our net loss decreased from $20.3 million to $3 million, as well as our earnings per share, loss per share rather, went from $0.42 loss to a $0.06 loss for the quarter. Capital investments, I'll point out on this slide, were up very slightly and according to our plan. And then switching to slide six, our financial highlights. Um, so as we mentioned, as I mentioned a moment ago, the loss decreased by 17.3 million, and that was primarily the result of the adoption of the California general rate case late last year. Um, so we had a couple of different factors associated with that. The first was, uh, obviously the rate increases associated with that, that added 4 million of revenue. Um, in addition to that, If you'll recall back in the 2020 first quarter, we did not recognize our balancing mechanisms. That's the RAM and the MCBA coupling mechanisms, as well as our pension and health care balancing accounts. And by recognizing them here in the first quarter of 2021, as they were continued and adopted in the rate case, we're adding $7.6 million of revenue associated with that. We did have, as you'd expect, increases in our other operations depreciation and associated costs, and that offset somewhat the revenue increases from the rate case as well as the recognition of the mechanisms. As we had mentioned at year end, our AFUDC equity, that's the funds used during construction, the equity funds used during construction, is lower than And that is a result of a lower amount of construction work in progress. During 2020, we had a significant capital project associated with the Palos Verdes Peninsula Water Reliability Project, and that was adding to our APDC equity all year. So we're expecting to see lower APDC equity throughout the year, and in the quarter, it was down about $1 million. Our capital spending I mentioned is up slightly. We believe we're on target for capital for the year. And then two other items that are outside of our general control, but I did want to mention because they're fairly significant in the quarter. The market value of certain of our retirement plan assets was, so the market value increased 0.3 million as compared to a loss of 4.7 million in the first quarter of 2020. So kind of a return to normal for that item. It was a big EVH in the first quarter of 2020. And then our unbilled revenue, very similar. We had a $100,000 loss on unbilled revenue, very small and probably more typical as compared to a negative $3.7 million in 2020, which was a sort of an atypical drop in that unbilled revenue accruals. And so those two items I'd say are a little bit more normal compared to the abnormal amounts that were in the last year. Flipping to slide seven, I won't talk in detail about this, but this is our waterfall EPS bridge chart that covers those same topics. Next on slide eight, I'll just make a brief comment about the tax rate. I know some of the analysts look at the effective tax rate of the company. Just wanted to remind everyone that during 2021, we are refunding to customers in rates $19 million of excess deferreds associated with the change in tax rate for the Tax Cut and Jobs Act. And that drives down the effective income tax rate to 6%. So the revenue is down and the tax rate is down. And so we aren't making any money on that. But just when you see the headline tax rate, it's very low. The second thing, there was a big benefit at the end of 2020 related to our mains and services repairs investments and the state tax deduction that we're allowed to take there. And just to update you on the estimate, in 2020, we had $160 million of deductible mains and services repair investments, and our current estimate for 2021 is that we will have $60 million that qualifies for that tax treatment. And so that's going to be a factor that's going to be a little bit lower for the year 2021. Capital spending is still anticipated to be between $270 and $300 million. That hasn't changed, but it's just the timing of the close of certain projects that is going to change that tax qualification. Next, I'm going to turn it over to Paul Townsley to give a regulatory update.