California Water Service Group

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the California Water Service Group third quarter 2022 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 star one again. I'd now like to turn the conference over to David Healy, Vice President, Corporate Controller. Please go ahead.

Thank you, Regina. Welcome, everyone, to the 2022 Third 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, Paul Townsley, Vice President, Corporate Development, and Greg Milliman, Vice President, Rates and Regulatory Affairs. Replay dial-in information for this call can be found in our third quarter earnings release, which was issued earlier today. The replay will be available until December 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 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.

Thank you, Dave, and welcome everyone to our third quarter earnings call. I'm going to be going through, in fact, all of our presenters today will be going through the slide deck with reference to page numbers, so you can follow along, and I believe on the webcast, the slides will track with us. So I'm gonna start on page five of the slide deck for a quick summary of the financial results for the third quarter. You can see the numbers there that our operating revenue was up 9.6 million or 3.7%. Our operating expenses were up 15.8 million or 8.5%. The result of those two items is that our net income was down 6.5 million or 10.5%. and our earnings per share were down 17 cents from $1.20 to $1.03. I do want to highlight on the sheet, and we'll be talking about it later, that our CapEx was up in the quarter from 69.2 million to 77.5 million. Similarly, on slide six, our year-to-date financial results, we can see net income is down 21.2 million on a year-to-date basis, and that's 50 cents on a year-to-date basis in an earnings per share sense. Turning to slide seven for a little bit of the color on the quarter. So we've been talking all year about our unbilled revenue and about the changes in valuation of our non-qualified plan assets. And in this quarter, we actually saw an increase in our unbilled revenue accrual. That is largely because the accrual was so low in the last quarter, and we talked about that in the last quarter. So we saw unbilled revenue go up this quarter. However, we continue to see a softness in that mark-to-market valuation of our non-qualified plan assets, and that was a $2 million change there. The operating expenses went up, as I mentioned earlier. Due to inflationary factors, for the most part, we saw wage increases, increases in the cost of goods and services. We saw two items that are probably pretty bouncy, and we did see them in the quarter. Our uninsured loss expense was up in the quarter. That is when someone is injured or makes a claim against the company. That's somewhat volatile. And then we did increase the reserve for bad debt, and we'll talk about that a little bit later in the call, but that is an increase as compared to the Q3 of 2021. For the year to date, really the bulk of the description year to date in the change in earnings has to do, again, with the unbilled revenue and with the change in the valuation of our nonqualified plan assets. You can see of the $21.2 million decrease in net income attributable to CWT, it was $9.4 million reduction in unbilled revenue, $11.4 million associated with the plan assets. Again, the unbilled revenue, as we mentioned last quarter, we expect to normalize by the end of the year with a change on a year-to-year basis, no more than plus or minus $2 million. So we'll continue to evaluate that as we go forward. I did want to highlight actually for the year to date that our financing program has been going very well. We issued 470,000 shares during Q3, and we issued 2.2 million shares in the last 12 months in our ATM programs, and so very, very happy with the results there. won't dwell on the bridges those say essentially the same thing that I was just saying in visual form and then on our call this morning we're going to talk quite a bit about our regulatory affairs particularly in California on slide 11 I'm going to start by giving you an update on the California cost of capital case so there was no update during the quarter from the administrative law judge as as those who were on our call last quarter will know The case was submitted in June. All the parties completed their testimony and the briefs and the reply briefs. Those were all completed in the summer. And so we're all just waiting on the administrative law judge to issue a proposed decision and then the commission to issue a decision and a case. The calendar is getting a little tight here. There is still a potential that the CPUC could issue a final decision this year. But in order to do so, we would have to see a proposed decision from the judge really within the next two and a half weeks because the commission voting meeting schedule in December is very light due to the holidays. We would expect that if we got a proposed decision after November 15th, we would not get a final decision in 2022. And so it's looking increasingly likely that a decision in cost to capital will come later than the end of the year. Because of the delay in issuing a decision, I know that many of the analysts have been focused on obviously interest rates going up in the economy since the time that we submitted. We can't determine how the Commission is going to evaluate those changes. We know that the testimony that was made in June did include some evidence of the inflation and the interest rate changes that had happened up to that point. but we're not certain how that might impact, and we're not certain about the impact of potentially the water cost of capital adjustment mechanism and whether that would trigger or not depending upon the final outcome of the case. And just a reminder, as we've been saying, that given our financing program, the proposed cost of debt in our application was quite a bit lower than the last adopted cost of debt And what that means is when the case is eventually decided and when the commission sets a starting date, at that time we will have about an $11 million reduction to the debt cost. And that we expect to be passed through to customers. We don't yet know what the timing is on the effective date of a decision. And so the company has not reserved for that amount or any other amounts associated with potential outcomes of the Costa Capital case. Next, I'm going to turn it over to Greg Milliman for slide 12 to give an update of our General Ray case.