California Water Service Group

and thank you for standing by. Welcome to the California Water Service Group Q3 2021 Earnings 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 the session, you will need to press star 1 on your telephone. And if you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Dave Healy, Vice President, Corporate Controller. Please go ahead.

Thank you, Lori. Welcome, everyone, to the 2021 third quarter results call for California Water Service Group. With me today are Martin Kropelnicki, our President and CEO, Thomas Nagel, 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 third quarter results release, which was issued earlier today. The replay will be available until December 29th, 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. You can also access a webcast of this earnings call presentation at the same website. Before looking at the third 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 10Q 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 good morning, everyone. So we at Cal Water are trying a little bit of new technology here today. We have the traditional conference call, which I know some of you are on, but in addition to that, we are webcasting this. at our website and by that you get an opportunity to see the slides along with us talking and hopefully you'll find that helpful and you can also hear a replay of that later on. One other unusual aspect of this quarter is because of what happened last year with our rate case, we're presenting our results in a slightly different order. So I'm mainly going to be talking about the year to date earnings and financial results, and you'll see that in the press release that we sent this morning as well as our slide deck emphasizing the year to date over the quarter because the third quarter results of 2020 were a little bit unusual. So, leading off with slide five, which is our financial results year to date, here we see that our net income rose $16.3 million. And that's about 20, that's 25 cents per share on a per share basis. I will highlight also here, and we'll talk a little bit later, that our capital investments are slightly down for the year to date from 221.3 million in 2020 to 207.7 million here in 2021. Flipping very quickly to slide six, which is the third quarter financial results. Remember that in the third quarter of 2020, we posted earnings that reflected the effect of the 2018 California general rate case proposed decision. We incorporated in that quarter results or regulatory assets for interim rates and for regulatory mechanisms that would have been reflected in Q1 and Q2 of 2020 had the decision been rendered timely. And so you'll see here that the results for 2021 third quarter are down, and it mainly reflects, in fact, almost exclusively reflects the fact that we're not recording that extra Q1, Q2 that we had in 2020. It'll be clearer on the bar chart, which I'll get to in just a couple of slides. Flipping now to slide seven, the year-to-date financial highlights. As I mentioned, we had increased net income The big drivers of this are rate increases, so it's the annual step increase in California, and various offset filings that added $16.3 million to our revenue. Our operating expense for the year-to-date period increased only $7.8 million, and this reflects reduced bad debt expense at the company. And that bad debt was reduced because of our expectations that our customers are going to be more able to pay their past due balances due to several different state aid programs, and we'll talk in some detail about that a little bit later in the call. We did see lower sales and a higher decoupling balance here in the third quarter, and that is due to our drought conservation in California that we're promoting. As I mentioned, the capital spending is slightly lower than 2020, but it's on track to meet our target range of $270 to $300 million for the year. And finally, impacting the year-to-date period, as we talked a little bit about on the second quarter call, our unbilled revenue accrual is adding $8.7 million above what it added in 2020. And so that's an adder for the year-to-date results. Flipping to slide eight for the earnings of the EPS bridge, again dealing with the year-to-date first, you can see the impact of rate relief offset by OPEX depreciation and local tax changes. And the unbilled revenue is a big portion of that over on the right-hand side. That's the 14-cent element on the year-to-date. If you flip to slide nine, this is the EPS bridge. for the company, just for the quarter, 2020 to 2021. And there you can see the large amount, 80 cents, that was booked in 2020 Q3, which had been related to Q1 and Q2 regulatory assets. And so you can get an idea from the other bars what it is that's driving our our change for the quarter, you will see a reduced OPEX in the middle of that chart. And again, that is due to our lower estimate of uncollectibles as a result of the customer relief mechanisms. I wanted to take a moment on slide 10 to talk about earnings and how to think about earnings for the rest of the year. And so we've talked about a number of these items on prior calls, and I just wanted to reiterate each of them so that there's a good understanding of where we are and where we're going. The first item over on the left-hand side of this slide is the unbilled revenue accrual. The revenue accrual is currently adding $20.1 million to revenue. And that compares to last year where it was adding $11.4 million at this time. The unbilled revenue is a result of a calculation that we do based upon how many of our customers have not yet received a bill at the end of the quarter and how many days that bill represents, what the average expected payment under that bill is. And what we find on a year-to-year basis is that it generally comes back down at the end of the year because we're dealing with cooler weather and smaller bills. And we expect that not to have a big impact on earnings on an annual basis. So when you see 20.1 million being added this year, that means most likely that you're going to see that number come down a long way to year end. So please keep that in mind. The second item that I'll address on the right-hand side of the slide is the authorized rate base. We've mentioned this before. A good way to calculate kind of our core earnings, our base earnings, is to take the authorized rate base, multiply that by the capital structure, the equity portion of the capital structure, and the authorized return on the equity portion of that rate base. That should get you a general guide to annual earnings. In addition to the unbilled revenue, other items which may impact earnings outside the authorized return on rate base are the recognition of equity AFEDC. This year, we have 2.3 million recognized to date. And just to remind you, last year at this time, I think that number was more like 4 million. That's come down a bit from last year to this year. But nevertheless, it is additive to that core earnings power. The second item is the gain or loss on any non-qualified retirement assets. This year we have so far a gain of $2.1 million in 2021, and the value of these assets is, of course, market-driven, and the year-end values will be based on the market conditions at year-end. And the last that I mentioned on a couple of other points earlier, the bad debt reserve has been reduced from 5.2 million at the end of 2020 to 2.8 million at the moment, reflecting changes in our estimates of cash recovery having to do with those state aid programs. And so what you'll notice for the year 2021 is that we actually have a negative uncollectible right now. So we started the year with 5.2 uncollectible. We're currently at 2.8 uncollectible. And that's certainly better than what would be in rates for 2021. So with all of that said, I'm going to turn it over to Paul Townsley to give us a regulatory update.