California Water Service Group

Ladies and gentlemen, thank you for standing by and welcome to the California Water Service Group Q4 and year-end 2022 earnings call. I would now like to turn the call over to Tom Scanlon, corporate controller. Please go ahead.

Thank you, Monty. Welcome, everyone, to the 2022 year-end fourth quarter earnings results call for California Water Service Group. With me today is Martin Krolpenicki, our president and CEO. Thomas Smagle, our Vice President and Chief Financial Officer, and Greg Milliman, our Vice President of Rates and Regulatory Affairs. Replay dial information for this call can be found in our year-end earnings release, which was issued earlier today. The replay will be available until May 1st, 2023. 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 yesterday afternoon and is also available at the company's website at www.kellwater.com. Before looking at this year's results, we'd like to take a few minutes 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 may differ materially from the company's current expectation. Because of this, the company strongly advises all current shareholders, as well as interested parties, to carefully read and understand the company's disclosure 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 want to start by pointing out Note 16 and the Form 10-K the company filed yesterday. During the fourth quarter of 2022, the company identified an immaterial error for regulatory liability and corresponding decreases to operating revenue and deferred income taxes that were not recorded in 2019. This is associated with customer refunds. The error does not impact customer billings or cash refunded to customers. The company recorded corrected the error in the financial statements through a restrainment of opening retained earning balance to the year ended December 31, 2020. For more details, please see the file 10-K. I'm going to pass it over to Tom Smagle.

Thanks, Tom Scanlon, and good morning, everyone. I'm going to walk through, as I usually do, the results of our full year and our fourth quarter. And I'm going to start on page five of the slide deck, which is a table of our financial results. And starting at the bottom of that table, our EPS for the year went from $1.96 in 2021 to $1.77 in 2022, a decrease of 19 cents. Our net income attributable to California Water Service Group declined by $5.1 million or $5.1 The capital investments I do want to highlight, and we'll be talking about that a little bit on the call today, increased $34.6 million to a new record of $327.8 million of CapEx for the year. To try to describe the full year financial results on the next page, remember that the big impact to the year that we've had is an $11 million unrealized change, negative unrealized change in the valuation. of our non-qualified retirement plan assets. That was the big impact for the year. Obviously, it's also the third year of the California general rate case cycle. And typically in that third year, we see that rate increases don't keep up with the operating expense increases. And that was certainly the case here in 2022. I want to jump then to the next slide and talk about the fourth quarter on slide seven. In the fourth quarter, we did see, and I know we talked in the first three quarters of the year about our unbilled revenue. We did see that unbilled revenue bounce right back up to where we had expected it to be as we talked about. And so the quarter was much better than the fourth quarter of 2021. Our EPS for the quarter was $0.35 per share as compared to $0.07 per share in 2021. And the net income for the quarter in 2022 point one million. So as I said, and flipping to slide eight, the primary driver there was the reversal of the unbilled revenue. You saw that we had an increase of eleven point one and overall for the year we had an increase of about one point seven million dollars in unbilled revenue. That's fairly typical for us to have anywhere from positive a million or two to negative a million or two. That usually washes out with that factor. a variety of reasons, and we continue to see a little bit of general rate increase associated with that GRC step increase that we got at the first of the year in 2022. The bridges describe those items that I just talked about, and I'll leave those for you to look at. Again, the big factors on the year is the mark-to-market, the big factor normal. So we have a lot of regulatory matters to report on. We have Greg Milliman here with us, and I'm going to start with Greg talking about our California cost of capital case.