California Water Service Group

Ladies and gentlemen, thank you for standing by and welcome to the California Water Service Group first quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this time, you will need to press star 1 on your telephone keypad. Also, please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. David Healy, Vice President, Controller. Thank you. Please go ahead, sir.

Thank you, Jeff. Welcome, everyone, to the 2022 First Quarter Earnings Results Call for California Water Service Group. With me today is Marty Kropelnicki, our President and CEO, Tom Smagle, our Vice President, Chief Financial Officer, and Shannon Dean, our Vice President of Customer Service and Chief Citizenship Officer. Replay dial-in information for this call can be found in our first quarter earnings release, which was issued earlier today. The replay will be available until June 26, 2022. 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 this quarter's 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're 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.

Thank you, Dave. Good morning, everybody from San Jose. We're having a A nice spring day in California, and we'll talk about a number of things that are going on this year for us nationally and in California and some of the things that might affect us over the course of the year. The quarter itself I'll talk about first, and I'm going to jump to slide five. to just do the comparative financials for the quarter versus last year, and it was a good quarter for us. We had higher revenue, of course, higher expenses related in some cases to that revenue, and a net effect of all of that was our net income was up $4.1 million to an income of $1.1 million as compared to a loss of $3 million in the first quarter of 2021. and our earnings per share was two cents for the quarter as compared to a six cent loss in the first quarter of 2020. 21. And as everyone on the call I'm sure knows, this is our lightest quarter. We are mostly in the business of selling water. And a lot of that water comes in the summer in California and Washington and Hawaii. And so most of our revenue and profits tend to be in the second and third quarter of the year. And so relatively quiet first quarter for us. Our CapEx is improved over last year very slightly, 1.7 million, increased there about 2.5 percent. Flipping to slide six, a couple of the other highlights for us as far as business operations go for the quarter. We were really excited to be able to apply to our customer bills the amounts that the state of California had provided to us for customers who had become delinquent during the COVID pandemic. And so we had received about a little bit over $20 million in relief from the state, and we've now applied that to our customer bills. So we've seen a pretty big reduction in the amount of customer delinquencies. We talked about that a little bit in the last quarter. We had a couple of factors that do impact us from time to time, and that is our unbilled revenue. We saw a little bit of an increase there over last year, $2.3 million. And then this mark-to-market of our non-qualified plan assets was negative in the quarter, as you might expect, as the stock market in general was down for the quarter. And then on slide seven, just a graphical representation of some of those things. Key thing I would want to focus on on slide seven is that our revenue increases of 12 cents a share are higher than our core operating expense increases of about nine cents a share. We had a very favorable third year rate increase in the California escalation process. That's helping us remember it is the third year of the California general rate case, so our opportunities for rate increases are limited. The other factors that you can see there are some of the other factors that I discussed on the prior slide. Next, I would like to jump in on slide eight to give a quick California regulatory update. There's a lot going on in California with two big cases for the company. There's not a lot to report right now as far as progress. So expect that in the second quarter and the third quarter, there'll be a lot more tangible information to report. But let me just give you a quick update here. So the California general rate case is continuing. We filed our rebuttal testimony earlier in April, and we've actually been having informal settlement discussions with the public advocate last week and this week. Those are confidential and cordial, I think it's fair to say, so good conversations going on there, but nothing to report out of those sessions. The California general rate case seems to be on schedule, and so we're in a wait and see mode, obviously. The schedules of General rate cases for water and electric utilities in California tend to slip, but in this case, we seem to be moving along pretty well. The issues in the GRC, as I talked about last quarter, are primarily due to the capital investment budgets. There's a big difference there in what the staff would like to see and what we proposed. Rate design is an issue, and some of our expenses, as is typical, are issues. Not a major difference, again, as I had mentioned last quarter, between the parties' positions on our sales and on our water production mix. Those are two big factors that are going to hopefully help allow us to continue to earn fair authorized recover returns after the RAM balancing account mechanism goes away next year. And so that, combined with hopefully a good outcome on rate design, will go a long way toward making a fair regulatory environment for us in California. The second case that's ongoing is the cost of capital case. We did file our rebuttal testimony in March in that case, and there have been some dialogue of potential settlement there, but generally speaking, we're going to hearing, and the hearings are actually next week. So, we'll start hearings next week in Costa Capital. Remember, that's a case that we file with three other California water utilities. and we're all asking for cost of capital for the same time period. That hearing and that case is delayed. That would have been decided by January 1st of this year, but the Commission delayed that process. So we don't know exactly when that's gonna become effective, when exactly we might get a decision in the case. It's unlikely that we'd get a decision at this point before the end of Q3. But that's the timeframe, maybe October, November, December is what we're thinking right now in terms of the timing of a decision. The issues for Cal Water are the capital structure and the cost of equity. And again, we talked about that on the last quarter call. If the CPUC were to adopt the company's proposed cost of debt, and there's no issue from the advocate on that, and accept the other things as no change, if you will, the annual impact would reduce revenues by about $11 million once rates become effective. So, you know, keep in mind that we lowered our cost of debt by doing financing and refinancing at lower values, and this is the proceeding where we're passing on those benefits to our customers in California. So next, I would like to turn it over to Shannon Dean to talk about ESG.