California Water Service Group Q4 2024 Earnings Report

California Water Service Group EPS Results

• Actual EPS: $0.33
• Consensus EPS: $0.38
• Beat/Miss: Missed by -$0.05
• One Year Ago EPS: $0.52

California Water Service Group Revenue Results

• Actual Revenue: $222.20 million
• Expected Revenue: $216.37 million
• Beat/Miss: Beat by +$5.82 million
• YoY Revenue Growth: N/A

California Water Service Group Announcement Details

• Quarter: Q4 2024
• Date: 2/27/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 27, 2025
• Conference Call Time: 11:00AM ET

California Water Service Group (NYSE:CWT) (NYSE: CWT) is a publicly traded holding company that provides regulated water utility services through its subsidiaries. The company delivers safe, reliable drinking water and wastewater management to residential, commercial, industrial and municipal customers across California, Hawaii and New Mexico. Its principal operating units include California Water Service, New Mexico Water Service and Hawaii Water Service, each responsible for end‐to‐end water supply operations—from source development and treatment to distribution and customer service.

Founded in 1926 as the California Water Service Company, the group has grown to become one of the largest investor‐owned water utilities in the United States by customer count. Headquartered in San Jose, California, CWT serves nearly half a million service connections across urban, suburban and rural communities. The company’s infrastructure portfolio comprises treatment plants, reservoirs, wells, pumping stations and an extensive pipeline network, all maintained to meet rigorous health, safety and environmental regulations.

California Water Service Group emphasizes sustainability, water conservation and community engagement as core elements of its strategy. It invests in advanced metering infrastructure and leak detection systems to optimize resource management, and develops drought‐resilient supply projects to enhance system reliability. The company also offers customer education programs and affordability initiatives designed to support low‐income households. Guided by an experienced board and executive team, CWT focuses on long‐term asset management, regulatory compliance and operational excellence to serve the evolving needs of its service territories.

California Water Service Group Q4 2024 Earnings Call Transcript

Key Takeaways

• California Water delivered record annual operating revenue of $1.0 billion and net income of $190.8 million (up 267.6% YoY), reflecting new rates from the 2021 GRC and lower water supply costs.
• In 2024 the company invested a record $471 million in infrastructure, boosting its rate base to nearly $2.4 billion (up 9.1%) and positioning for ~11.7% annual growth 2024–27 (excl. PFAS projects).
• The 2024 general rate case is progressing on schedule—scoping memo issued, public hearings completed and settlement discussions slated for spring—supported by an innovative low-water-use equity program.
• Cal Water maintains a strong liquidity profile with $50 million unrestricted cash, $395 million available credit and CPUC authorization to issue up to $1.3 billion in debt and equity, while preserving its A+ rating.
• The board approved the 321st consecutive quarterly dividend, raising the 2025 payout by 10.7% to $1.24 per share plus a one-time special $0.04, rewarding shareholders after GRC delays.

Presentation

[Operator]

Hello, and thank you for standing by. I would like everyone to be welcome to the California Water Service Group Q4 twenty twenty four and Full Year Earnings Conference Call. I would now like to turn the call over to our CFO, Jim Lynch. Please go ahead.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

Thank you, Dustin. Welcome everyone to our fourth quarter twenty twenty four 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 for 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 03/31/2025.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

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 eight ks and is also available on the company's website at www.kalwatergroup.com. Before looking at our fourth quarter twenty twenty four 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 Securities and Exchange Commission. And now I'll turn the call over to Marty.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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 2021 general rate case for California and that was financially very challenging for the company.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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 base growth and dividend growth. Adding 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.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

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 CPC issued our 2021 GRC decision in March of twenty twenty four. As a result, we also benefited from 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.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

Looking at Q4, these benefits were partially offset by lower water usage resulting from cooler, wetter weather in December of twenty twenty four compared to December 2023. Finally, I'll note that in the fourth quarter of twenty twenty three, we recognized 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 twenty twenty four. Our operating revenue for the quarter increased 3.6% to $222,200,000 compared to the prior year Q4 operating revenue of $214,500,000 Net income for the quarter was $19,700,000 or $0.33 per diluted share compared to $30,100,000 or $0.52 per diluted share in Q4 of twenty twenty three. Now I'll dive a little deeper into Q4 earnings as we look at the earnings bridge. As I noted, the increase in Q4 twenty twenty four revenue was driven primarily by a $24,200,000 or $0.45 diluted earnings per share increase in rates billed to customers as authorized in our regulatory filings and an increase of $5,500,000 or $0.1 per diluted share in our Monterey Water Rate Adjustments Mechanism or our MRAM due to lower high tier water sales.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

This was partially offset by lower unbilled revenue totaling $8,100,000 or $0.15 per diluted share due to lower December water usage and $19,400,000 or $0.36 per share related to previously deferred RAM balances recognized in Q4 of twenty twenty three that did not recur in 2024. Q4 '20 '20 '4 operating expenses were $189,900,000 compared to $179,300,000 in Q4 of twenty twenty three. This was an increase of $10,600,000 Following along on Slide six, water production costs increased by 3,400,000 or $0.06 per diluted share to $73,700,000 primarily due to an increase in wholesale rates and higher consumption. And income tax benefit decreased $9,900,000 or $0.13 per diluted share to $3,900,000 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.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

Annual operating revenue increased to slightly more than $1,000,000,000 in 2024 compared to $794,600,000 in 2023. Annual 2024 net income was $190,800,000 or $3.25 per diluted share compared to annual 2023 net income of $51,900,000 or $0.91 per diluted share. This represents $138,900,000 or 267.6% increase in net income year over year. The 2024 revenue increase of $242,400,000 was driven primarily by the cumulative impact of our 2021 California GRC decision, including 2023 interim rate relief and MRAM revenue totaling $123,900,000 or $1.73 diluted earnings per share. In addition, 2024 results benefited $122,100,000 or $1.53 per diluted share from higher rates and increased water consumption.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

Operating expenses in 2024 were $811,800,000 compared to 2023 operating expenses of $717,500,000 Following along on Slide eight, this increase was primarily driven by higher water production costs of $22,200,000 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 $10,700,000 or $0.15 per diluted share due to new utility plant placed in service. Finally, income taxes increased $51,000,000 or $0.25 per diluted share due primarily to higher pretax income. As a reminder, as a result of the Q1 twenty twenty four adoption of our 2021 California GRC decision, interim rate relief related to 2023 totaling $87,500,000 of revenue and $64,000,000 of net income was recorded in our 2024 operating results. This included $20,200,000 of revenue and $13,600,000 of net income that was attributable to the three months ending 12/31/2023.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

Turning to Slide nine, we continue 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 $471,000,000 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 $226,000,000 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.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

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 $2,400,000,000 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 base growth of around 11.7%. This excludes the anticipated $226,000,000 in PFAS capital investments, less 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.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

In August, the CPUC issued a final decision granting Cal Water the authority to issue up to $1,300,000,000 in new debt and equity securities I'll now turn the call back over to Marty for our recent dividend announcement.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Great. Thanks, Jim. Looking on Page 14, we ended 2024 paying our three hundred and twentieth consecutive quarterly dividend in January of this year. We're in this year we announced 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 10.71% dividend increase and results in a 7.75 compound annual growth rate for our dividend growth.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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 rate case. Greg?

[Greg Milleman, Vice President of Rates & Regulatory Affairs at California Water Service Group]

Thanks, Marty. Turning to Slide 14, I'm pleased to report that we continue to make progress with our 2024 general rate 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.

[Greg Milleman, Vice President of Rates & Regulatory Affairs at California Water Service Group]

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.

[Greg Milleman, Vice President of Rates & Regulatory Affairs at California Water Service Group]

Before turning back to Marty, I just want to reiterate our proposal. We expect to invest $1,600,000 in our districts from $25,000,000 to $27,000,000 including approximately $1,300,000,000 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 $140,600,000 for 2026, '70 '4 point '2 million dollars for 2027 and $83,600,000 for 2028. We are now eight months into the standard eighteen month review process with the PUC. With that, I'll turn it back to you, Marty.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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?

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

Yes.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

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 31, we had $50,100,000 in unrestricted cash, $45,600,000 in restricted cash and $395,000,000 in available credit. Our credit facilities totaled $600,000,000 with the ability to expand to $800,000,000 and they mature in March of twenty twenty eight. We're proud to maintain our A plus stable rating for S and P Global and our Capital First mortgage bonds continue to be rated AA-.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

And now I'll turn the call back over to Marty to go over our recent dividend program.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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 $1,000,000,000 plus of debt in equity today, but it does mean we have the ability to finance the capital program going forward and the outbound years as we continue to make improvements to infrastructure. I think that's incredibly important as we continue to deal with wildfire hardening, sustainability and resiliency planning.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

A couple of 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 05/01/2026. This effectively maintains Cowater's current capital structure through 12/31/2026, including the 10.27% current return on equity. Along with this decision, the CPUC also reauthorized the water cost to 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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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, 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 or our strategy going forward is a dual or a two pronged strategy.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

That was up 39% year over year. In terms of committed connections, and keep in mind, this is kind of a greenfield, 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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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 in 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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

More specifically, every year, we make it a goal, high 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 work 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 $1,000,000 over the last five years in supporting our fire agencies and helping them buy equipment that they may not have budgets for.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

So, equipments that help save lives and help save homes, etcetera. 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 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 is a it was down there a couple of weeks ago.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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 that 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 or who need to aid the most and we will match those contributions. So going into 2025, 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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

As I mentioned in my opening comments, the delayed 2021 rate case was very painful for the company. And I'll apologize that the financial results are very lumpy. So we went from making $51,000,000 1 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 targeted domestic M and A opportunities and continue in our greenfield development in Texas, which is yielding very, very good results.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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 form a basis, as well as record capital, record dividend growth.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

We had no primary secondary water quality violations. We had outstanding customer service scores. So 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 of months. So, Dustin, with that, why don't we open it up for questions, please?

[Operator]

Thank you. And with the first question, this is coming from the line of Jonathan Wheeler from Wells Fargo. Your line is open.

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

Hey, good morning, team. How are you all?

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Good morning, Jonathan.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

Hey, Jonathan.

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

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

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Yes. Gregg, you want to take that one first?

[Greg Milleman, Vice President of Rates & Regulatory Affairs at California Water Service Group]

Yes, certainly, Jonathan. This is kind of 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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Yes. And I just add to that, Jonathan, one of the pivots the company has made over the last ten years is really taken 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 the climate change and try to improve sustainability. So because that program is very risk focused, it's very risk detailed and then 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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

It'll be a process. It'll always be 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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

As we just saw in Southern California, another big wildfire, we got to continue wildfire hardening and readying our systems for these changes that we're dealing with that are dealing with climate change. So I agree, Greg. So far, I think we're on track. We got the advocates report. We're going through it.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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 will take place early in the summer months and see where we end up.

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

Okay. So early in the summer months is when settlement kind of commences?

[Greg Milleman, Vice President of Rates & Regulatory Affairs at California Water Service Group]

Actually, on the schedule right now, Jonathan, it's for April, where we work in for settlement and then hearings are scheduled for May.

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

Okay. And I mean, there's nothing that prevents you from reaching a settlement after the hearings if one isn't able to be reached beforehand?

[Greg Milleman, Vice President of Rates & Regulatory Affairs at California Water Service Group]

Correct. Correct. Yes. Okay.

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

Marty, for maybe this is for Jim. Is the roughly $85,000,000 of equity issued in $24,000,000 of 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 the proposed, and I know it's just proposed, 2025 to 2027 CapEx and rate based budget?

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

Yes, 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.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

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 don't 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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

And Jim, I think it's probably fair to add to that too. I mean, I mean, the balance sheet is in great shape. We have plenty of liquidity. Our lines of credit are very, very strong. Our credit rating is outstanding.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

It's also a function of what the capital needs are, what's happened in the short term interest rate markets, right? And kind of what the long term capital amount of stability in the interest rate market as well as capital markets as they get more choppy as we've seen kind of in the previous kind of eighteen months, the interest rates going up certainly help raise the weighted average cost of capital for everything. And so part of Jim's job is to be a little opportunistic 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 price for our customers.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

Yes. 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.

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

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 on a go forward basis, maybe you don't need as much of that $85,000,000 annually. Is that fair?

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

Yes, 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 in as Marty said in the most efficient manner.

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

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?

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Yes, we do. If you recall, Jonathan, we put a press release out. I want to say it was eighteen months ago, so technically two years ago, where we partner 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 that it's a number of municipal players plus ourselves and the Guadalupe Basin River Authority.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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. So as soon as that happens, obviously, there is so much development going on in that system, in that area. If people haven't been out there, 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 is pretty remarkable for all of us working here. It was a great time to be in the Valley and just things were taken off.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

It was a great job market for everyone. But the explosion of growth in that South Austin corridor, I would say is 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 there's so much growth going on. I was out there at the January and plant that we just put in has already had already has hundreds of customers connected to it.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

And we're looking at the plant expansion to the next level of the plant because things are just growing so fast. So yes, we will 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.

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

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

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Yes. 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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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'd be happy to take you out there, but you drive that corridor and the amount of growth going on both residential, but also commercial, it's just mind boggling.

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

Okay, great. And I appreciate that color. And then last one for me, just a housekeeping item. The release mentioned like $87,500,000 of revenue, $64,000,000 of net income from the retroactive benefit of the delayed GRC decision. Does that fully capture the EBA offset too?

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

Because I was thinking you previously said the retroactive benefit was roughly $1 whereas that $64,000,000 implies like $0.09 or $0.1 higher.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

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

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

Yes. I mean, the release mentioned a $64,000,000 net income retroactive benefit from the delayed GRC decision that was recorded in Q1. But does that fully capture I thought there was also like an ICBA offset and that's kind of how you got to roughly $1 whereas that $0.64 sorry, the $64,000,000 net income number applies something higher more like $1.1

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

Yes, 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 contribution of the 2021 rate case into the 2024 results. And I can walk you through the smaller numbers to get you to that $1.1 number.

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

Okay. So I mean, so $1.1 is more accurate. So we should be thinking about the $2.25 or sorry, the $3.25 less the 1.1

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

I think so, yes. I focus on the $1.1 number.

[Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities]

Excellent. All right. Thanks so much guys. I appreciate your patience in answering all my questions.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Thanks, Jonathan.

[Operator]

Thank you. And our next question comes from the line of Davos Sunderland from Baird. Your line is open.

[Davis Sunderland, Equity Research Associate at Robert W. Baird & Co]

Good morning, guys. Congrats on a great update and thank you for taking my questions.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Absolutely. How are you?

[Davis Sunderland, Equity Research Associate at Robert W. Baird & Co]

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 liquidity profile that you guys have, how are you thinking about acquisitions potentially in 2025 and I guess the business development pipeline more broadly? And then I have one in housekeeping after that.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Yes. No, David, it's great question. And I just want to reference back to that rate base growth slide that Jim mentioned. Obviously, we're in a really, really good spot right now. We have almost a 12% growth rate on rate base.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

That does not include the capital investments we'll be making over the next three to four years on PFOS and PFOA. So 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 a I think the fastest clip that Telwater has been at since I've been here and I think the fastest clip that it's been at since probably the 1980s. Obviously, you had some boom during the Silicon Valley days of the late '70s, but 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. Now having said that, obviously, we are going to continue to look and we'll be very, very strategic.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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 and 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 from a customer perspective and a regulatory perspective, we'll be all over it. 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 Shilim Patel does a great job running our business development activities.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

He partners with Sean Bunting, our General Counsel, who also has a lot of experience in utility M and 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 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 and A.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

And I think I'd just add one thing, Davis, in that regard. BVRT was a new or Texas is a new platform for us. And it's a new platform in 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 and A activity or opportunity that we're getting by being in that market.

[James Lynch, Senior VP, CFO & Treasurer at California Water Service Group]

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 right. It checks a lot of boxes, if you will, in terms of what we look for in terms of M and A activity.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Yes, Davis, I mentioned I was in Texas at the January, and we had an employee get together. And a number of their employees were like, Oh, Marty, God, we feel a little bad that we only had 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, gang, if we can maintain a 16% growth rate, I will be the happiest CEO in the water space. Very happy with that, let's maintain our cadence.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

We got all those developers to use in escrow. We have to get that 15,000 to 16,000 customers connected to our system. They pay 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, God, 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%.

[Davis Sunderland, Equity Research Associate at Robert W. Baird & Co]

Absolutely. Thank you, Marty. And thank you, Jim. I got you loud and clear. Maybe then just one other quick one.

[Davis Sunderland, Equity Research Associate at Robert W. Baird & Co]

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.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Yes. 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 what was set up by the EPA. So that's number one, it was new. Number two, we had to go out and survey all of our water sources.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

And that sounds like an easy concept on the front line, but we have over almost 1,200 wells that we have to go out and do the testing for people, okay, boss, we have to identify the wells etcetera. 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 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 known, but it's uncertain and timing is not known. So the capital cost and the timing is not quite known yet, it qualifies for memo account treatment.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

So we'll likely have a MEMO account in California. In the three states, we got to deal with PFO 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. And so it'll evolve. Obviously, we're going to run it as a corporate program, right, because it is a new water quality initiative and standard and our goal is to meet and exceed those water quality standards every day that we operate in.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

So 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?

[Greg Milleman, Vice President of Rates & Regulatory Affairs at California Water Service Group]

Actually, I was going to, but you wrapped it in your wrap up, you hit it off. It's really getting nailing down the estimate. That was the direction we got from the commission.

[Davis Sunderland, Equity Research Associate at Robert W. Baird & Co]

Okay. Super helpful guys. Thank you so much.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

All right, Dave. Have a good day.

[Operator]

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. Propelnicki for closing remarks.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

Hi, Dustin. Thank you. Well, everyone, thanks for taking time today. I know it's earnings week and a lot of people are releasing. Jim and I will be around the rest of this week and next week.

[Martin Kropelnicki, Chairman, President & CEO at California Water Service Group]

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 April. So thank you very much for joining us today. Have a great day and be safe. Thank you.

[Operator]

The meeting has now concluded. Thank you all for joining. You may now disconnect.

Participants

Executives

• James Lynch, Senior VP, CFO & Treasurer
• Martin Kropelnicki, Chairman, President & CEO
• Greg Milleman, Vice President of Rates & Regulatory Affairs

Analysts

• Jonathan Reeder, Equities Research Analyst at Wells Fargo Securities
• Davis Sunderland, Equity Research Associate at Robert W. Baird & Co