California Water Service Group

Hello, and thank you for standing by. I would like everyone to be welcome to the California Water Service Group Q4 2024 and full-year earnings conference call. I would now like to turn the call over to our CFO, Jim Lynch. Please go ahead.

Thank you, Dustin. Welcome, everyone, to our fourth quarter 2024 results call for California Water Service Group. With me today is Marty Kropelnicki, our chairman and CEO. and Greg Milliman, Vice President of Rates and Regulatory Affairs. Replay dial-in information from this call can be found in our quarterly results earnings release, which was issued earlier today. A replay of today's call will be available until March 31st, 2025. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8K, and is also available on the company's website at www.calwatergroup.com. Before looking at our fourth quarter 2024 results, I'd like to cover forward-looking statements. During our call, we 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. As a result, we strongly advise all current shareholders and interested parties to carefully read the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Qs, press releases, and other reports filed with the Security and Exchange Commission. And now I'll turn the call over to Marty.

Thank you, Jim. Good morning, everyone. I'm going to give you a brief overview before we jump into the details. And I'll just start off by saying what a difference a year makes. We started 2024 with delayed 21 general rate case for California. That was financially very challenging for the company. And now we end the year in excellent financial position, setting a new number of highs on certain critical business elements, including revenue, capital investment from our infrastructure improvement plans, rate-based growth, and dividend growth. And in our continued work on wildfire hardening, resiliency planning and sustainability, and our proactive approach to emergency preparedness and response planning. And it really was one heck of a year. I think as we go through the results here today, I believe you will agree that Cal Water accomplished a lot in 2024 under difficult circumstances, but by the end of the year, it has positioned us very, very well for continued success in 2025 and beyond. So Jim, with that, why don't we jump into the results for the year? Great.

As Marty mentioned, we did achieve strong financial results in 2024. We benefited from both new rates and the new rate structure that was authorized in our 2021 California general rate case. You may recall that the CPUC issued our 2021 GRC decision in March of 2024. As a result, we also benefited from 2020-2023 interim rate relief at the time the decision was issued. Beyond the 2021 GRC, we benefited from a lower cost water supply mix as a result of higher precipitation in many of our California service areas over the past couple of years. Looking at Q4, these benefits were partially offset by lower water usage resulting from cooler, wetter weather in December of 2024 compared to December 2023. Finally, I'll note that in the fourth quarter of 2023, we recognize a significant amount of revenue that was deferred under our Water Revenue Adjustment Mechanism, or our RAM, as well as benefits from the Tax and Jobs Act tax, or TCJA, that did not recur in the fourth quarter of 2024. Our operating revenue for the quarter increased 3.6% to $222.2 million compared to the prior year Q4 operating revenue of $214.5 million. Net income for the quarter was $19.7 million, or 33 cents per diluted share, compared to $30.1 million, or 52 cents per diluted share, in Q4 of 2023. Now I'll dive a little deeper into Q4 earnings as we look at the earnings bridge. As I noted, the increase in Q4 2024 revenue was driven primarily by a $24.2 million or 45-cent diluted earnings per share increase in rates billed to customers as authorized in our regulatory filings, and an increase of $5.5 million or 10 cents per diluted share in our Monterey Water Rate Adjustments Mechanism, or our MRAM, due to lower high-tier water sales. This was partially offset by lower unbilled revenue totaling $8.1 million or 15 cents per diluted share due to lower December water usage and $19.4 million or 36 cents per share related to previously deferred RAM balances recognized in Q4 of 2023 that did not recur in 2024. Q4 2024 operating expenses were $189.9 million compared to $179.3 million in Q4 of 2023. This was an increase of $10.6 million. Following along on slide six, water production costs increased by $3.4 million or six cents per diluted share to $73.7 million, primarily due to an increase in wholesale rates and higher consumption. An income tax benefit decreased $9.9 million or 13 cents per diluted share to $3.9 million, primarily due to the timing of the annual TCJA tax benefit recognition. Turning to slide seven, our full year 2024 results benefited from the same regulatory mechanisms as the quarterly results. Annual operating revenue increased to slightly more than a billion dollars in 2024 compared to $794.6 million in 2023. Annual 2024 net income was $190.8 million, or $3.25 per diluted share, compared to annual 2023 net income of $51.9 million, or $0.91 per diluted share. This represents $138.9 million, or 267.6% increase in net income year over year. The 2024 revenue increase of $242.4 million was driven primarily by the cumulative impact of our 2021 California GRC decision, including 2023 interim rate relief and MRAM revenue totaling $123.9 million or $1.73 diluted earnings per share. In addition, 2024 results benefited $122.1 million, or $1.53 per diluted share, from higher rates and increased water consumption. Operating expenses in 2024 were $811.8 million compared to 2023 operating expenses of $717.5 million. Following along on slide eight, this increase was primarily driven by higher water production costs of $22.2 million, or $0.31 per diluted earnings per share, due to an increase in wholesale water rates and increased water consumption. In addition, operating expenses were impacted by higher depreciation and amortization of $10.7 million, or $0.15 per diluted share, due to new utility plant placement service. Finally, income taxes increased $51 million or 25 cents per diluted share due primarily to higher pre-tax income. As a reminder, as a result of the Q1 2024 adoption of our 2021 California GRC decision, interim rate relief related to 2023 totaling $87.5 million of revenue and $64 million of net income was recorded in our 2024 operating results. This included $20.2 million of revenue and $13.6 million of net income that was attributable to the three months ending December 31st of 2023. Turning to slide nine, we continued to make significant investments in our water infrastructure to help ensure the delivery of safe and reliable water service. Company capital investments in 2024 totaled a record $471 million. This represents a 23% increase over our capital investments in 2023. As a reminder, our 2024 capital investments and our estimated capital investments for the period from 2025 through 2027 do not include $226 million of estimated PFAS projects scheduled for construction through 2027. In addition, for the period from 2025 through 2027, our estimate of capital expenditures is predicated in part on the outcome of our 2024 GRC in California and normal capital needs in our other subsidiaries. We expect our annual capital expenditures to increase during the next five years due to the continuing need to replace and maintain our water infrastructure. Turning to slide 10, you can see the positive impact that our record level of capital investments is having on our regulated rate base. Our overall rate base grew to almost $2.4 billion for the year, an increase of 9.1% over 2023. If approved as requested, the 2024 California GRC and Infrastructure Improvement Plan, coupled with the planned capital investments by our utilities in other states, would result in a compounded annual rate-based growth of around 11.7 percent. This excludes the anticipated $226 million in PFAS capital investments, plus any recovery offsets that are planned through 2027. Moving to slide 11, we continue to maintain a strong balance sheet, executing on several initiatives during 2024. In August, the CPUC issued a final decision granting Cal Water the authority to issue up to $1.3 billion in new debt and equity securities.

I'll now turn the call back over to Marty for our recent dividend announcement.

Great. Thanks, Jim. Looking on page 13, we ended 2024 paying our 320th consecutive quarterly dividend. In January of this year, we announced an annual dividend increase of $0.08 a share plus a special one-time dividend increase of $0.04 a share, bringing the annual dividend to $1.24 a share up from $1.12 a share. The dividend increase for 2025 represents a 10.71% dividend increase, and results in a 7.7 five-year compound annual growth rate for our dividend growth. The special one-time dividend that was approved by our board of directors was meant to reward our shareholders as we dealt with the delayed 2021 general rate case and the financial challenges it posed to the company while we waited for the rate relief. Your patience was appreciated, so thank you very, very much. With that, I'm going to turn it over to Greg to give us an update on what's happening on the regulatory side in the Ray case. Greg?

Thanks, Marty. Turning to slide 14, I'm pleased to report that we continue to make progress with our 2024 general Ray case. As a reminder, on our third quarter call in October, we had completed the initial pre-hearing conference and a judge and commissioner were assigned to our case. We are pleased with the assigned commissioner given his past work at the California Public Advocates to educate the CPUC on the negative customer impacts associated with rate case delays. Since then, the commission issued the scoping memo and ruling in November 2024. We completed public participation hearings across our service area and, importantly, we saw strong support for our infrastructure improvement plans during these events. We received the California Public Advocates Report in late January. We are working with our teams internally to evaluate and respond in accordance with the California Rate Case Plan Schedule. Importantly, I would like to emphasize that this response was timely. To that point, given recent decisions issued by the CPUC and our current process, We are optimistic that we'll be receiving a decision on a reasonably timely basis and are pleased with the progression thus far. Before turning back to Marty, I just want to reiterate our proposal. We expect to invest $1.6 million in our districts from 2025 to 2027, including approximately $1.3 billion of newly proposed capital investments to continue providing reliable high quality water service. Our application includes an innovative low water use equity program designed to decouple revenue from water sales while keeping rates affordable and reinforcing conservation goals.

Our proposal includes rate increases to generate an additional... Excuse me one second.

Our proposal includes rate increases to generate an additional $140.6 million for 2026, $74.2 million for 2027, and $83.6 million for 2028. We are now eight months into the standard 18-month review process with the PUC. With that, I'll turn it back to you, Marty.

Great. Thanks. Prior to talking about a couple of things on the regulatory side, Jim, why don't we take a moment to just talk about liquidity?

Yeah, thanks. Thanks, Marty. So turning to slide 12, we do continue to maintain a strong liquidity profile to execute both our capital plans and on our strategic investments. As of December 31st, we had $50.1 million in unrestricted cash, $45.6 million in restricted cash, and $395 million in available credit. Our credit facilities totaled $600 million, with the ability to expand to $800 million and they mature in March of 2028. We're proud to maintain our A-plus stable rating for S&P Global, and our capital-first mortgage bonds continue to be rated AA-. And now I'll turn the call back over to Marty to go over our recent dividend program.

Great. I covered the dividends already, but if everyone can jump to slide 15, I want to talk about our cost of capital and a couple other regulatory updates that are going on. First, as Jim mentioned, we got the approval to issue more debt and equity to finance our infrastructure improvement plan going into 2025 and beyond. I want to make sure we're clear this doesn't mean we're going to run out and raise a billion plus dollars of debt and equity today, but it does mean we have the ability to finance the capital program going forward in the outbound years as we continue to make improvements to infrastructure. And I think that's incredibly important as we continue to deal with wildfire hardening, sustainability and resiliency planning. A couple other things that I think are important to note, as we announced in January, the CPUC granted our request to postpone our cost of capital filing for another year until May 1st, 2026. This effectively maintains CalWater's current capital structure through December 31st, 2026, including the 10.27 current return on equities. Along with this decision, the CPUC also reauthorized the water cost of capital adjustment mechanism, which potentially adjusts the rate of return when the Moody's utility bond index fluctuates by more than 100 basis points. We appreciate the Commission's flexibility on pushing this out one more year. Obviously, with the rate case underway, we felt that our resources were better focused on the rate case versus doing a cost of capital filing at this time. On the right-hand side of the page, we start talking a little bit more about other states. And for those of you who have been with us for a while, you know we have continued to grow our investments in Washington, Hawaii, New Mexico, and now Texas. Internally, we've initiated a program to be more proactive in pursuing rate adjustments in our other states. All the states that I just mentioned are historic states, meaning we have to invest the dollars put the plant in service, start depreciating that plant, and then apply for rate relief. Our paths forward on this, our strategy going forward, is a dual or a two-pronged strategy. One, the company wants to be more proactive in enabling us to recover our costs on a more timely basis, i.e. doing more timely rate filings. And two, by doing this, it provides for smaller incremental adjustments versus large less frequent adjustments, which affect rates for customers. So we've hired a senior rates executive into that position who now oversees the rates for all of our home states, which are really our subsidiary companies. And we have kicked that off and it's off to the races. It's a member of Greg's team, and I think the team's off to a great start. While we're talking about the subsidiary companies, I want to take a moment to talk about our growth in Texas. I think as many of you know, we have been in that South Austin, North San Antonio market in that tech corridor. During 2025, we connected another 1,200 customers to our systems, which gives us a total customer account in excess of 4,200. That was up 39% year over year. In terms of committed connections, and keep in mind, this is kind of a green field. These housing developments are rapidly being developed. So we have what's called a committed connection. This is where developers put money in escrow to provide the funding to connect to our system. So during 2024, we added almost another 2,200 connections to the committed list. That means we have another just about 16,000 connections in escrow waiting to connect to our systems in that market. That continues to be the fastest growing area of our subsidiary companies is that South Austin market. So far, all of our work in that South Austin market has been on the wastewater side of the business. Turning to the next page, I want to take a moment to talk about our leadership and emergency preparedness and emergency response. For those of you that read our proxy, you know that one of our main goals, one of our top five main goals, is emergency preparedness and emergency response. More specifically, every year, we make it a goal, five bonuses to that goal, to host a number of community EOCs, or Community Emergency Operations Center exercises. These are very popular programs that we sponsor that allow multi-agency participation, as well as utility first responders, utility employees, first responders, and community officials to hold drills to learn to work together better in the event of a real disaster. These, obviously, with the wildfires that we had in Southern California, the ones we've had in Hawaii, this is a very, very popular program that yields very good results when you actually do have a disaster. So we remain dedicated to our community outreach and our community EOC exercises that we're doing. In addition, as we mentioned on slide 16, we've invested nearly $1 million over the last five years in supporting our fire agencies and helping them buy equipment that they may not have budgets for. So, equipments that help save lives and help save homes, etc. During 2024, we donated another $175,000 to a number of agencies in California through our firefighter grant program. As we move into the spring, spring is right around the corner. We have a very proactive wildfire mitigation plan that includes vegetation management, infrastructure upgrades, and obviously position our crews and backup equipment as we start moving into the fire months, which will most likely start as early as June this year. Of course, as it comes to Southern California, I'm very happy to report none of our systems were directly affected by the wildfires in Southern California, although we did have a number of employees who had to evacuate their homes. All of our employees were safe, all of their homes were safe, and more importantly, none of our systems were affected by the fire. Having said that, it was down there a couple weeks ago, The fire scar is massive. There's a lot of work that has to be done. Cal Water has contributed more than $100,000 to the various local agencies who are on the front line providing rate relief, as well as we have doubled our employee match program, which allows our employees to make contributions to the local charities that support people on the front line who need the aid the most, and we will match those contributions. So going into 25, you'll see us continue our leadership role in emergency preparedness and emergency response. We think that's one of the most important things we do, again, as we deal with kind of the climate change reality of the world that we live in. So looking ahead to 2025, let's take a moment and talk about what to expect. First and foremost, as Greg and Jim both mentioned, It's the third year of a rate case for California. California is our largest subsidiary company that we operate. So this is the year we tend to see the most amount of regulatory lag. So obviously, tightly managing our controllable expenses in the third year is really important. Additionally, we want to do everything that we can to keep the 2024 general rate case on schedule. As I mentioned in my opening comments, the delayed 2021 rate case was very painful for the company. financial results are very lumpy. So we went from making $51 million one year to having this record off the charts revenue this year. But as Jim said, that is the recognition of their retroactive piece of the rates in California. So obviously we want to do everything we can to avoid that situation with the 2024 rate case and hopefully bring that into conclusion by the end of this year. We also want to continue to evaluate strategic growth areas through a targeted domestic M&A opportunities and continuing our greenfield development in Texas, which is yielding very, very good results. And lastly, and probably most importantly, we want to continue to provide our best in class service for our customers, as well as water quality. So there'll be a lot happening during 2025. Obviously, the infrastructure improvement plans are big. I'm very happy with the results. And I think, again, you have to see through the clutter of the lumpiness of the results. But really, when you strip it away, you had record revenue, you had record earnings on a normalized basis, pro forma basis, as well as record capital, record dividend growth. We had no primary, secondary water quality violations. We had outstanding customer service scores. The company is positioned very, very well going into 2025, and I look forward to sharing with you the Q1 results here in a couple months.

So, Dustin, with that, why don't we open it up for questions, please? Thank you.

So, if you would like to ask a question, please press star and the number one on your telephone keypad. Again, that is star and the number one on your telephone keypad.

We're just going to pause for just a moment to compile the roster. And with the first question, this is coming from the line of Jonathan Reeder from Wells Fargo. The line's open. Hey, good morning, team. How are y'all? Good morning, Jonathan. Hey, Jonathan.

Thanks for taking my question, and congrats on a good update. First off, I just wanted to get your thoughts on the public advocate's position in the 2026 to 2028 GRC and, you know, what you believe the potential is to reach a settlement, you know, particularly on the key items like capex and expenses. Obviously, you know, decoupling might be a little more controversial.

Yeah. Greg, you want to take that one first?

Yeah, certainly, Jonathan. This is kind of, you know, you've been around, so you've seen it. It's traditionally always a pretty far margin where public advocates will come in. But in light of some of the activity that's been happening recently with the other water companies, I believe that we will have an opportunity to sort through some of this stuff and settle on various items. Right now we're still, as I said, working through our positions. and putting together our rebuttal to put ourselves in a better negotiation position for those settlement discussions by providing additional evidence for the record. So, optimistic that things could go well.

Yeah, and I just add to that, Jonathan, you know, one of the pivots the Cup has made over the last 10 years is really taking a risk-based approach to our capital program. So, obviously, the biggest part of our request to the Commission is really the capital dollars that we need to continue to make the infrastructure improvement changes that we need as we adapt to climate change and try to improve sustainability. So because that program is very risk-focused, it's very risk-detailed, and we look for the highest rates of return that eliminate the highest amount of risk. So I think that actually helps us in these discussions, but I think Greg is right. You know, it'll be a process. It'll always be a process. a very good debate, I'm picking my words carefully, as we go into negotiations around these key things. But we're very keenly focused on risk mitigation and adapting for our future. And I think that is really, really important. As we just saw in Southern California, another big wildfire, we've got to continue wildfire hardening and readying our systems for these changes that we're dealing with that are dealing with climate change. I agree with Greg. So far, I think we're on track. We got the advocate's report. We're going through it. We're working on our responses now. I've been very happy with the assigned commissioner because every indication we've seen from him so far is he wants to try to keep the GRC on course. But the next big lift after we file our rebuttal is really getting into those settlement discussions that'll take place early in the summer months and we'll see where we end up.

Okay, so early in the summer months is when

settlement kind of commences actually on the schedule right now Jonathan it's for April where we work in and for settlement and then hearings are scheduled for me okay and I mean there's nothing that prevents you from reaching a settlement after they after the hearings if if one isn't able to be reached beforehand correct correct correct yeah okay Marty, or maybe this is for Jim, is the, you know, roughly 85 million of equity issued in 24 under the ATM a good annual run rate to assume in the years ahead, or how should we be thinking about annual equity needs to support, you know, the proposed, and I know it's just proposed, 2025 to 2027 CapEx and rate-based, you know, budget?

Yeah, I think it's a great question, Jonathan. So the current ATM expires in April, so we'll be looking to renew the current program after we're actually in the process of taking a look at it now. And as part of that, we're doing an assessment in terms of what we think we would need in terms of the amount of the shelf in order to support the capital investments as we move forward. Clearly, as we work through the rate process, we'll assess exactly where we want to land relative to the shelf to see what we need to support that program. So I think more to come on that. I will tell you that we are targeting to kind of raise equity only to the extent that it is necessary for us to maintain a consistent capital structure at the group level relative to what we are authorized in, specifically in California, but in our operating utilities. I think that's really our focus in terms of how we plan to use it going forward. So really, I'm trying not to give you a number because it's going to be really opportunistic in terms of where we need it relative to support the CapEx plan or any other capital initiatives as well as how we are specifically tracking relative to our cap structures.

And Jim, I think it's probably fair to add to that, too. I mean, the balance sheet's in great shape. We have plenty of liquidity. Our lines of credit are very, very strong. Our credit rating is outstanding. It's also a function of what the capital needs are, what's happening in the short-term interest rate markets, right, and kind of what the long-term capital needs are. So, you know, hopefully we continue to get some amount of stability in the interest rate market as well as the capital markets, you know, as they get more choppy, as we've seen kind of in the previous kind of 18 months, you know, the interest rates going up certainly helped raise the weighted average cost of capital for everything. And so part of Jim's job is to, you know, to be a little opportunistic and to look at these places where we can jump in and raise equity, our debt, when it is needed and get it at the lowest possible price for our customers.

Yeah, certainly we are going to keep an eye on the markets and take advantage of when the best time is to be in both the debt and the equity markets to support our programs.

Okay, and remind me, I mean, I think right now at the group level, you're over-equitized relative to what's authorized in California. Is that correct? Where maybe, you know, on a go-forward basis, you know, maybe you don't need as much as that $85 million annually. Is that fair?

Yeah, I think that's fair. Again, I hesitate to put a number on it, but it is our objective to bring that, as you described it, over-equitization down to be more consistent with our OPCOs and doing that, as Marty said, in the most efficient manner.

Excellent. Okay. And then I think, Marty, you were the one that discussed the growth in Texas thus far and noted that so far all work has been on the wastewater side. Do you have aspirations or near-term plans to move into water there?

Yeah, we do. If you recall, Jonathan, we put a press release out. I want to say it was 18 months ago, so technically two years ago, where we partnered with the Guadalupe Basin River Authority to extend their water pipeline into that South Austin market where there's no water. So as that pipeline gets built, we anticipate that we will get into the water business in the South Austin market when that pipeline is completed. And that's a public-private partnership, but it's a number of municipal players plus ourselves and the Guadalupe Basin River Authority. And I have to go back and look at the project schedule. I believe it's into 2026 now is when that water is supposed to be starting to be delivered in that South Austin market. As soon as that happens, obviously there's so much development going on in that system, in that area. If people haven't been out there, you know, Jim and I, as well as a number of people at Cal Water, we grew up in Silicon Valley during the Silicon Valley boom, which was pretty remarkable for all of us working here. It was a great time to be in the valley and just things were taken off. It was a great job market for everyone. But the explosion of growth in that South Austin corridor would say it's probably tenfold what the explosion was in Silicon Valley back in the 80s and for anyone who has lived in Silicon Valley during the 80s think about that I mean it's just it's just there's so much growth going on I was out there the end of January and and plant that we just put in has already had already has hundreds of customers connected to it and we're looking at the plant expansion to the get into water in that South Austin market. We're making investments in pipelines right now to bring that water into that market. And then in the meantime, we're going to continue to grow the wastewater business in that area.

Okay. And on the water side, I mean, would it be similar where, you know, it's kind of these agreements with developers, you know, kind of, I think you called it, you know, greenfield developments. Does that help you think about it?

Yeah, that's exactly what it is. And this is really kind of greenfield development. We partnered with another company that specializes in it. They're very, very good at it. BVRT is the company name. And it's basically greenfield development. And again, I'd encourage, if anyone's interested in this, give me a call. I'll be happy to take you out there. But you drive that corridor and the amount of growth going on, both residential but

it's just mind-boggling okay great now i appreciate that color and then last one for me it's housekeeping item the release mentioned like 87 and a half million of revenue 64 million of net income you know from the retroactive benefit uh of of the delayed grc decision does that fully capture the because I was thinking, you know, you previously said the retroactive benefit was, you know, roughly a dollar, whereas that $64 million implies, like, 9 or 10 cents higher.

I'm sorry, Jonathan. I missed the first part of your question. If you could just kind of go back through that.

Yeah, I mean, the release mentioned a $64 million net income, you know, retroactive benefit from the delayed GRC decision. You know, that was recorded in Q1. Right. But does that fully capture, you know, I thought there was also like an ICBA offset, and, you know, that's kind of how you got to roughly a dollar, whereas that 64 cents, or sorry, the 64 million net income number, you know, applies something higher, more like, you know, $1.10.

Yeah, it does. It captures the major components of it. There were some other things that have, we didn't really discuss on the call, but impacted the overall numbers. the overall contribution of the 2021 rate case into the 2024 results, and I can walk you through the smaller numbers to get you to that $1.10 number.

Okay, so I mean, so $1.10 is more accurate, so we should be thinking about the $2.25, or sorry, the $3.25 less the $1.10?

I think so, yes. I focus on the $1.10 number.

Excellent. All right. Thanks so much, guys.

I appreciate your patience in answering all my questions. Thank you, Jonathan. Thank you. Again, if you'd like to ask a question, please press star and the number one on your telephone keypad.

And our next question comes from the line of Davis Sunderland from Baird.

The line's open. Good morning, guys. Congrats on a great update, and thank you for taking my questions.

Absolutely.

How are you? I'm doing well. Thank you. And I guess I'll just start. Jonathan took a lot of my questions and thank you for all the color on those. Maybe if I could just add on to one that he was asking about Texas and your comments, Marty, about Texas. Maybe more broadly with the liquidity profile that you guys have, how are you thinking about acquisitions potentially in 25 and I guess the business development pipeline more broadly? And then I have one housekeeping after that.

Yeah, no, David's great question. And, you know, I just want to reference back to that rate-based growth slide that Jim mentioned. You know, obviously, you know, we're in a really, really good spot right now. You know, we have almost a 12% growth rate on rate-based. That does not include the capital investments we'll be making over the next three to four years on PFOS and PFOA. So, yeah, you know, from a growth perspective, a rate-based growth perspective, we need to stay really focused internally on executing our plan because we're running at, I think, the fastest clip that Cal Water's been at since I've been here, and I think the fastest clip that it's been at since probably the 1980s. Obviously, it had some boom during the Silicon Valley days of the late 70s, but the you know, right now we're just in a great spot. So for us to lose focus on the core business, it has to be a really good opportunity. Now, having said that, you know, obviously we are going to continue to look and we'll be very, very strategic. We are interested in expanding our service territory and we do have plenty of capacity on the balance sheet. But the primary growth engine of Cal Water has been and will continue to be that investment through our infrastructure improvement plans on our existing infrastructure, and then we'll supplement that with strategic M&A and targeted markets. So if opportunities are there and it looks like we can make money on them and we can add value to it from a customer perspective and a regulatory perspective, we'll be all over it. If, you know, if there's opportunities where we cannot make money or it's a poor regulatory market, or there's not a lot of room to build out, we're probably going to be less interested in it. So Shilam Patel does a great job running our business development activities. He partners with Sean Bunting, our general counsel, who also has a lot of experience in utility M&A. So we have a great team working on this area. But we will continue to be strategic in our focus and keep an eye on the real potential family jewel here or the company jewel is that rate-based growth and making sure we can hit our targets around that and supplementing our growth with strategic M&A.

And I think I just add one thing, Davis, in that regard. You know, BVRT was a new – or Texas is a new platform for us. And it's a new platform and a very strong market. And the greenfield developments that we are involved in down there are showing tremendous growth, as Marty mentioned. It's everything that we would want in an M&A activity or opportunity that we're getting by being in that market. So I know we've described it as a greenfield development that we've been involved in from day one, but you can really take a look at it as if it's us going into a new market with a great new platform and an opportunity for significant growth. And that's... That's right. It checks a lot of boxes, if you will, in terms of what we look for in terms of M&A activity.

Yeah, Davis, I mentioned I was in Texas the end of January and we had an employee get together and a number of employees were like, oh, Marty, you know, God, we feel a little bad that we only had, you know, almost a 17% growth rate year over year. And because the growth was in the previous years was even bigger than that. I'm like, dang, you know, if we can maintain a 16% growth rate, I will be the happiest CEO in the water space. You know, very happy with that. Let's maintain our cadence. You know, we got all those developers fees and escrow. We have to get that, you know, 15 to 16,000 customers connected to our system. They paid their fees. So we have to have those systems ready to go. And let's just keep building out the system and stay focused. So it's kind of funny. They were like, oh, you know, guy, we were a little, We wish we had a little bit more growth that we could report during the year. I'm very happy with that 16%, almost 17%.

Absolutely. Thank you, Marty, and thank you, Jim. I got you loud and clear. Maybe then just one other quick one. You mentioned in the first part of your first response, Marty, you spoke PFO and PFAS not being included in the CapEx plans. And I guess, why is that? Is it as simple as when you went through the general rate case, those costs were estimated yet, or... Is there a reason you think about those differently? And I guess how should we think about the cadence of those or of spending on those upgrades? Thanks, guys.

Yeah, I'll start and then I'll have Greg kind of jump in as well. So, one, it's a new water quality standard, right, that was set out by the EPA. So that's number one, it was new. Number two, we had to go out and survey, you know, all our water sources. And, you know, that sounds like an easy concept on the front line, but we have over, you know, almost 1,200 wells that we have to go out and do the testing for PFOA, PFOAS. We have to identify the wells, et cetera. So there was a certain amount of uncertainty with how big is the program going to be. And then ultimately you had some uncertainty coming from the EPA. When were they going to adopt the guidelines? How are the states going to adopt the guidelines? So for example, in California, California gave us a memo account, which if you look at that criteria of it's, you know, it's, it's known, but it's uncertain and timing's not known. So the capital costs and the timing's not quite known yet. It qualifies for memo account treatment. So we're lucky we have a memo account in California. In the three states, we got to deal with PFOA and PFOS. It's really California, it's Washington, and it's New Mexico. Those are the areas that we're doing the most work in. It'll evolve. Obviously, we're going to run it as a corporate program because it is a new water quality initiative and standard. Our goal is to meet and exceed those water quality standards every day that we operate in. That's why it's kind of outside the rate case is because of the uncertainty of timing and we still have to estimate the capital. But the estimates are still moving around a little bit, but we're starting to hone in on what those numbers are going to look like. Greg, anything you want to add on that?

Actually, I was going to, but you wrapped it in your wrap up. You hit it off. It's really getting nailing down the estimates.

That was the direction we got from the commission. Super helpful, guys. Thank you so much. All right, Dave. Have a good day. Thank you.

Seeing as there are no more questions in the queue, that concludes our question and answer session. I will now turn the call back over to our CEO, Marty A. Kropomicki, for closing remarks.

All right, Dustin. Thank you. Well, everyone, thanks for taking time today. I know it's earnings week and a lot of people are releasing and Jim and I will be around the rest of this week and next week. If anyone has questions, please feel free to reach out to us and we'll answer them any way that we can. It's nice to have 2024 closed and in the rearview mirror, a lot going on in 2025 that we're excited about. And we look forward to reporting our results at the end of the first quarter, the end of April. So thank you very much for joining us today.

Have a great day and be safe. Thank you. The meeting has now concluded. Thank you all for joining. You may now disconnect.