California Water Service Group Q1 2025 Earnings Report

California Water Service Group EPS Results

• Actual EPS: $0.22
• Consensus EPS: $0.16
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: $1.21

California Water Service Group Revenue Results

• Actual Revenue: $203.97 million
• Expected Revenue: $194.80 million
• Beat/Miss: Beat by +$9.17 million
• YoY Revenue Growth: -24.70%

California Water Service Group Announcement Details

• Quarter: Q1 2025
• Date: 5/1/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 11:00AM ET

California Water Service Group (NYSE:CWT), through its subsidiaries, provides water utility and other related services in California, Washington, New Mexico, Hawaii, and Texas. The company is involved in the production, purchase, storage, treatment, testing, distribution, and sale of water for domestic, industrial, public, and irrigation uses, as well as for fire protection services. It offers its services to approximately 497,700 customer connections in 100 California communities; approximately 6,500 water and wastewater customer connections on the islands of Maui, Oahu, and Hawaii; approximately 38,000 customer connections in the Tacoma, Olympia, Graham, Spanaway, Puyallup, Rainier, Yelm, and Gig Harbor areas; and approximately 11,400 water and wastewater customer connections in Rio Communities, Rio Del Oro, Meadow Lake, Indian Hills, Squaw Valley, Elephant Butte, Morningstar, Sandia Knolls, Juan Tomas, and Cypress Gardens systems. The company also engages in the provision of non-regulated water-related services, including operating of municipally owned water systems, privately owned water, and recycled water distribution systems; water system operation, meter reading, and billing services to private companies and municipalities; leasing of communication antenna sites on its properties; and billing of optional third-party insurance programs to its residential customers. In addition, it provides lab, wastewater collection, and treatment services. California Water Service Group was founded in 1926 and is headquartered in San Jose, California.

California Water Service Group Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the California Water Service Group First Quarter twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer I would now like to turn the conference over to James Lynch, Senior Vice President, Chief Financial Officer and Treasurer.

[Operator]

You may begin.

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

Thank you, Desiree. Welcome everyone to the first quarter twenty twenty five results call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO. Replay dial in information for this call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until 06/30/2025.

[James P. 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.calwatergroup.com. Before looking at our first quarter twenty twenty five results, I'd like to cover forward looking statements. During our call, we may make forward looking statements, and 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 ks, Form 10 Q, press releases, and other reports filed from time to time with the Securities and Exchange Commission.

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

And now I'll turn the call over

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

to Marty.

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

Thanks, Jim. Good morning, everyone. And thanks for dialing in this morning to review our Q1 twenty twenty five results. We have a few items on the agenda today.

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

One, we'll talk about the strong first quarter. And just to remind everyone, we are in the third year of the general rate case in the state of California, which is our largest subsidiary. And typically, first quarter is one of our more challenging quarters. But Q1 of this year, actually, we did surprisingly well. We want to talk to you an update on our progress with the 2024 general rate case, which remains on track.

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

Talk about a couple of favorable decisions that we've had in both California and Hawaii on some other regulatory items. And finally, give you an update on what's happening with the annual water supply in the West. And so before going into our topics today, I'm going to turn it over to Jim to walk us through the financials, which Jim I think are a little confusing, but I think in the press release in the back, there's a reconciliation there that I found very helpful. I know I was preparing for today. So Jim, I'm going turn it over to you.

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

Thanks Marty. What Marty was referring to is we did present non GAAP information in our press release, and we'll be discussing some non GAAP information on today's deck as it relates to 2024. As we've discussed on previous calls, the company's delayed 2021 general rate case decision resulted in interim rate relief, which was recorded in 2024. In reporting the first quarter twenty twenty five results, we present both GAAP and non GAAP financial measures, with the non GAAP financial measures in place to remove the impact of the 2023 interim rate relief from the 2024 results. On a GAAP basis, operating revenue for the quarter was $2.00 $4,000,000 compared to $270,700,000 in the first quarter of twenty twenty four.

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

And net income attributed to group was $13,300,000 or $0.22 per diluted share, compared to $69,900,000 or $1.21 per diluted share in Q1 of twenty twenty four. Interim rate relief recorded in the first quarter of twenty twenty four that related to 2023 included revenue of $90,300,000 and net income of $65,800,000 or $1.14 per share. When we adjust for the Q1 twenty twenty four interim rate relief, first quarter revenue increased 13% over non GAAP 2024 revenue of $180,500,000 In addition, first quarter net income and diluted earnings per share increased 225214% respectively over Q1 twenty twenty four non GAAP income of $4,000,000 4 point 1 million dollars and non GAAP earnings per share of $07 Moving to our diluted earnings per share bridge, the primary drivers for first quarter twenty twenty four were rate changes and increased customer usage, which contributed $0.20 per share, and approval of two advice letters, one to recover drought expenses and one to recover expenses related to the Palos Verdes pipeline project that together contributed $07 per share. Expense offsets included water production wholesale costs and customer usage increases of $08 per share, and $04 per share in higher depreciation expense due to new assets placed in service.

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

We're really pleased with the outcome of both the Palos Verdes and Drought Advice Letter decisions, and Marty is going to provide some more information on these decisions a little bit later in his remarks. Turning to slide seven, we continue to make significant investments in our water infrastructure to ensure the delivery of safe, reliable water service. Company capital investments during the quarter totaled $110,100,000 a pace that was consistent with the record quarter we reported in Q1 of twenty twenty four. As a reminder, our capital investments do not include estimated $222,500,000 of remaining PFAS project expenditures. Also, estimates for 2025 through 2027 are predicated in part on the outcome of our 2024 general rate case in California and normal capital needs in our other subsidiaries.

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

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 eight, the positive impact of our capital investment program is demonstrated in our regulated rate base growth presented on the slide. If approved as requested, the 2024 California GRC and Infrastructure Improvement Plan with our other planned capital investments in other states would result in a compounded annual rate base growth of approximately 11.7. Moving to slide nine, we continue to maintain a strong liquidity profile. As of 03/31/2025, we had $44,500,000 in unrestricted cash, dollars 45,700,000.0 in restricted cash and $315,000,000 in availability on our credit lines.

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

We continue to maintain strong equity and debt credit ratings, and with the cost of capital extension in California through 2026, our authorized 10.27% ROE will be applied to a supportive equity percentage in our authorized capital structure of 53.4. With that, I'll turn the call over to Marty for

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

a few additional remarks.

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

Thanks Jim. I am on slide 10, and I am pleased to report that yesterday our Board of Directors approved our three hundred and twenty first consecutive quarterly dividend in the amount of $0.30 a share. As a reminder, in January of this year, we announced a dividend increase of $08 a share plus a special one time increase of $04 a share, bringing the annual dividend from $1.24 up from $1.12 The dividend increase for 2025 represents about a 10.7% dividend increase and gives us a five year compound annual growth rate of 7.7% on the dividend line, which we think is very healthy number. The special one time dividend was meant and approved by our Board of Directors to reward our stockholders who dealt with the delayed 2021 general rate case and the financial challenges that it brought forth with it, including deciphering some of the financial reporting that Jim's been working on.

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

I think he's done a good job with the financial statements this quarter. Looking to slide 11, moving on to some stuff on the regulatory side. The California twenty twenty one general rate case continues to move forward on schedule, Following the issuance from the California Public Advocates, they're basically a review or their report of our rate case. We submitted our rebuttal testimony, and we participated in settlement discussions during the month of April. While we are not able to reach a global settlement with the California Public Advocates, we are now working to identify areas of agreement in order to align the upcoming evidential hearings, which will take place this month, the month of May.

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

We remain confident in our testimony that we provided in the rate case. I think as most of you know, the last three cycles, we've invested heavily in how we plan for capital and execute our capital programs. And we remain confident in our testimony. We look forward to moving into the evidential hearing phase of the process with the commissioner and with the judge. Moving on to slide 12, a couple other things that are noteworthy on the regulatory side.

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

First and foremost, as part of the 2021 general rate case decision, we're authorized to get what's called an annual escalation rate. And so for 2025, that was filed. It is subject to an earnings test. And I'm very pleased to report that the majority of our districts passed that earnings test. And it represents a $27,200,000 additional revenue requirement that was adopted for this year.

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

These rates went into effect in January 1. In addition, in California, the Palos Verdes Peninsula Water Reliability Project, that's what happens when you let engineers name projects, they get really long. So I call it the Palos Verdes project. It was the largest project in the company's history, which is replacing about 15 miles of Maine in Downtown Palos Verdes and urban LA area. In January, we received a final decision approving the inclusion of 14,200,000 of incremental capital costs for this project.

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

So that's been added to rate base. In addition, the decision allows us for a temporary surcharge to recover $3,800,000 of carrying costs associated with that project. These new base rates were implemented in February, and the surcharge will begin in April, so last month. In addition, in California, in January, we received approval to recover $1,400,000 in drought related costs that have been tracked through the Dreamit account. Related surcharges were implemented on April first of this year.

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

Looking at a couple other regulatory events that are happening around our systems turning to Hawaii. During the first quarter, we reached a settlement with the Kannapali General Rate Case with the Hawaii Consumer Advocates. The settlement sets a test year revenue of $7,500,000 So that's a 1,100,000 increase in revenue. So that'll be going into effect later this month. And then lastly, kind of looking on to slide 13, looking at our water supply going into the spring, that's always a hot topic out West with climate change.

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

Overall, it's been a very healthy winter out here on the West Coast. We have a strong snowpack, overall in California, it 99% of normal for the month of April. For those of you that know the topography associated with California, the Sierras, it's a very, very long range. And so you can be as far south as Southern California down in LA and all the way up well past Tahoe into Northern California. So the range within the range is 85% to 120%.

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

But overall, we're about 99% of normal on a snowfall for the state of California. This coupled with very heavy rainfall during the winter and spring months has put us in really good shape and the major reservoirs remain above historical averages and we feel really good about the decision California is going into the summer months. We do not expect any other water supply issues in other states, including Washington, New Mexico, and for the majority of Hawaii. Although in West Maui, West Maui continues to be in a drought and targeted conservation efforts are underway, but we do not expect any material issues in that area. Hawaii is a state that we're spending take let me say it this way taking a lot of the lessons learned in California conservation programs and applying that to states that have newer issues associated with drought and drought management.

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

So we're taking a lot of the lessons learned in California and applying those in our conservation programs in the West Maui area. So with that, moving to slide number 14, looking at the year ahead. As I mentioned in the beginning, it is the third year of the rate case cycle in California. This is historically a period where we see heightened regulatory lag. And that coupled with market volatility, inflation, the potential for tariff effects on a lot of the goods and services we use during our construction projects means that tight management of controllable expenses remains a priority, and it will be throughout the year.

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

In addition to staying focused on the budget and execution of the capital plans, keeping the general rate case on focus and to avoid any major delays like we saw in 2021. I will say I've been generally pleased with the feedback we've been getting from the advocates, the commissioner's office, and the judge offices in terms of doing everything they can to keep the rate case on schedule, which I think is really good news. Looking at our growth strategy, the ongoing greenfield development that we have in Texas, it's continued to develop very, very well and continued strong results. So we plan to stay focused on that South Austin corridor, which continues to grow. And we're also continuing to evaluate a number of domestic M and A opportunities.

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

Although I just want to be clear, the main growth objective of California Water Service Group really is the rate base growth that Jim talked about earlier on the slide deck and that 11.7% compound annual growth rate. So M and A is a supplemental growth process for us. Additionally, as we go into the warmer summer months, we want to maintain our best in class customer service and our water quality goals of no primary or secondary water quality violations. Obviously, we got a lot of infrastructure investment to do over the remaining nine months of 2025, especially coming out of a wet winter. As Jim referenced, we kept with the same pace that we had last year in the quarter on the capital investments, which we're very happy with given the fact it was a very, very wet winter in California, and that tends to slow us down on the construction management side.

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

And of course, lastly, today being May 1, believe it or not, it is the official start of the fire season. And so our teams are busy doing all the wildfire hardening projects that we do, clearing brush, etcetera, getting all the equipment ready for the long, dry summer months that lie ahead. So with that, overall, it was a very good quarter. We're very pleased with the results, financial results. Again, I'll apologize that they're confusing, but again, that was nothing that the company can control.

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

And again, I would just call your attention to the non GAAP information that Jim provided in the deck to look at the quarters on a more normalized basis. And so, Desiree, with that, let's open it up to questions, please.

[Operator]

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone in your device, And our first question comes from the line of Angie Storozynski with Seaport.

[Operator]

Your line is open.

[Angie Storozynski, Senior Equity Research Analyst at Seaport Research Partners]

Thank you. So I wanted to talk about the California GRC. We haven't seen a settlement even though we were hoping for one. So just wonder, I mean, can you just give us a sense, for example, what are the key points of contention here? Is it decoupling?

[Angie Storozynski, Senior Equity Research Analyst at Seaport Research Partners]

Is it O and M expense, CapEx? Just any sense of, know, or maybe from a different angle where, what can you agree on with the consumer advocate? Thank you.

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

Yeah, thanks Angie. As mentioned in my previous comments, obviously we did not reach a global settlement with the Cal Advocates. Because we are settlement discussions, I really can't get into the details of that. But to the comments I made, we're obviously going through a process right now and identifying areas that were non contested. And that will be submitted to the judge in the hearing conference as we move into the hearing part of the process.

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

So we really can't say a whole lot other than it's moving forward. And again, even with the non able to reach a global settlement with the commission, the commissioner, the judge, and the advocates have all indicated a desire to keep the rate case on schedule. So I anticipate this next phase going through the hearing components, we'll continue to move on schedule as the rest of the rate case. So can't really say much more than that right now, but obviously we'll be flat be filing briefs and stuff, etc. With the PUC here during the month of May.

[Angie Storozynski, Senior Equity Research Analyst at Seaport Research Partners]

Okay, that's all I had. Thank you.

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

Thanks, Angie. Have a good day.

[Operator]

Our next question comes from the line of Davy Sunderland with Baird. Your line is open.

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

Hey, Marty, Jim. Good morning, guys. Thank you for taking my question. Maybe if I could start, I actually like to piggyback on Angie's question just about the GRC and thank you, Marty for the updates on this. Just trying to get a frame of reference for the 2021 GRC and when you guys were able to see for the first time, hey, this might get delayed or it's getting off the rails a little bit.

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

How is this case progressing relative to that one? I guess any insight to compare the two or what that inflection point was, if you can see what I'm getting at, would be helpful. And then I have maybe one follow-up.

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

Sure, that's a very good question, Davis. The 2021 rate case right out of the chute, there were significant disagreements with Cal Advocates and us. And not only disagreements, was hard to even get people in a room to even really talk about it. So you add that and you had COVID and the fact that the commission was still on a work remote basis. There's just a lot of different factors then to now.

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

To me, the most significant factor that I'm tracking is what are people saying? And so I go back to Commissioner Baker has clearly indicated in public comments, he thinks California needs to do a better job getting rate cases done on time. I think that's a big positive comment. We didn't have that before on the last rate case. The fact that the Cal advocates in our discussion, even though we couldn't reach a global settlement, have indicated want to do everything they can to get the rate case out on time.

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

And then the judge, I think the judge that we have assigned to this case, I think he is unbiased, I think he is very focused on the procedural law, which I think is a very good thing. And he's driving the rate case process really hard. So I think to me the big thing is kind of what the parties are staying involved in the process and the fact they're saying it. You didn't have a whole lot of that going on in the last rate case. And I think a big stumbling block was the fact you were coming out of COVID and people could not get in a room to even talk.

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

So I look at how the comments are lining up. They're very consistent. Everyone's indicating a desire to get this rate case done on time. I didn't have comments like that in the last rate case cycle. So I'm a lot more bullish this time.

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

Now, obviously, you can hit a procedural snag as you go through the process. But look, we're almost at a year end. I guess we're ten months into a eighteen month process. And so far, every indication we've had is staying on schedule, which I think is a good sign.

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

That is super helpful, and thank you for that. And then maybe if I could just ask one more. You mentioned tariffs and potential impacts and managing costs throughout the rest of the year. I don't know if you could share any more just about how you guys are baking in potential elevated costs or the impact of rerouting supply chains into your outlook for the year or specifically if there's any meaningful year over year comps the rest of the year that we should consider as it relates to costs? And thank you again, Guinness.

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

Yeah, that's another good question. I think it's still too early to tell if you look at the volatility associated with comments coming from the administration about the effects of tariffs, who's going to be tariffed, who's not going to be tariffed, what's going to be tariffed, which countries are negotiating, which countries are not. So I still think it's a little too early to tell. Obviously, in what we do, and especially given our large construction project, we have stuff that comes from all around the world. Panel boards have chips, chips come from Taiwan.

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

We have steel and pipe and both PVC and steel that's manufactured domestically and some of that comes from foreign sources. Some of the steel that's manufactured domestically has iron ore that comes from Europe. So it's a very, very, very kind of murky situation. What I would say, and this is why I remain guardedly optimistic, is we went through supply constraints during COVID. And our materials management team and our engineering management team, program management teams we're able to navigate those supply constraints without disrupting our capital flow and our ability to get capital to the ground.

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

So up to this point, we've managed it. Likewise, we've had a fair amount of inflation the last two years. We've been able to manage absorbing that inflation and still maintain our earnings momentum and our growth momentum. So I remain guardedly optimistic, but I would be lying to you if I had a crystal ball, Davis, and I look at the economic indicators and say, oh, there's a clear sailing ahead. Because clearly the market's not saying that.

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

And so for us, continue to button down the hatches, continue to make sure that you're managing your overtime, your expenses. Obviously, we have things like wildfire management programs we have to do. We're not going to cut costs on that, but do everything we can to keep everyone focused on kind of a disciplined budgetary approach, and then being able to adapt to those things when they happen. And so Cal Water's had a good history of being able hit their budgets during difficult times and will maintain. Jim, anything that you want to add on that?

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

Yeah, think, Marty, the only other thing I would mention, Davis, is the financial markets have been whipsawed over the last, well, since April, the April. And we're continuing to keep an eye on what's happening in the debt markets as well as the equity markets in terms of our future financings. Right now, there's a lot of volatility out there. And we're hoping that as we go from the second to the third quarter, that volatility kind of settles down, and we'll have a better sense of what's available and the timing with which we want to enter the debt and equity markets. But to where we are right now, we're in a really strong position in terms of our short term availability of financing to continue our strategic initiatives.

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

So we'll just kind of keep an eye and hope for the best in terms of getting a little more, guess, settled down financial markets that we can take advantage of later in the year.

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

This is great. Thank you both. Appreciate it.

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

Thanks, Davis. Have a good day.

[Operator]

Our next question comes from the line of Jonathan Reeder with Wells Fargo. Your line is open.

[Jonathan Reeder, Analyst at Wells Fargo]

Hey, good morning, team. How are you?

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

Good morning, Jonathan.

[Jonathan Reeder, Analyst at Wells Fargo]

So it sounds like Marty, the Q1 results were a little better than your internal expectations. Can you just kind of elaborate on like what drove that beyond what the waterfall chart shows? Was it higher usage now that you're no longer decoupled? Or were there perhaps some favorable expense timing issues?

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

Jonathan, it was a number of things. One, obviously, when we had the delayed general rate case, Jim did a really good job with the financing, really buttoning down the budgets. And so while the rate case was delayed, we really just we cut spending every place we could until we got the rate decision kind of put in place. So we had to really prioritize our capital where we're spending it and any of the discretionary spend that the company had. So I think in operations, the team has continued to do a good job with their budgets, even though we've loosened some of those budgets up once we got the rate case resolved.

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

So I think you can kind of start with that. In addition to that, I think the water mix in this rate case is much more closely aligned to what actual is. And if you recall, when we were decoupled, you had some big differences between adopted and actual. So the fact that the water mix is tracking closely together means that the rate case is a more accurate forecast. I think that's helping us.

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

I mean, you're absolutely right, Jonathan, you follow us for a while. Usually when it's the third year of the rate case, we always tell people, hey, don't expect anything in the first quarter. So I was really happy with the quarterly results, year over year increase in earnings. And we'll just have to keep executing to the plan. And again, to the question that David just asked, there's going to be curveballs thrown at us with everything that we're seeing in the market.

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

And I think our ability to absorb those curveballs are positioned really well, whether it's liquidity in the balance sheet that we have right now, or our ability to reprioritize capital and expenses to meet our obligations and goals for the company for the year. So water mix rate case and tariff differences is what I would attribute to you as well as good kind of budget management by the operating teams within Cal Water.

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

Yeah, and then we did get from a from a usage perspective, we were at at authorized into the first couple of months with the third month in March, we got a little bit wet weather, colder weather as compared to last year. And so that brought us back kind of close to where we were last year about the same time. Year over year, a little better usage than we saw. We were hoping for a little bit better, better usage than what we But I think it didn't, having the RAM did not hurt us in any way in Q1.

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

Yeah, Jim, think the other

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

thing that's noteworthy too is are the step increases. And that $27,000,000 in step increases, you're starting to see the effect of that into the tariffs. And it used to be if you go back two rate cycles, our step increases would be $4,000,000 maybe $10,000,000 And so because we've done a much better job at executing our capital plan, the amount of uptake that we get on our step increase has been a lot higher. And that step increase is basically an inflationary offset, but it is subject to an earnings test. That earnings test is based on invested capital.

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

So that plays into this as well.

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

Yeah, so I guess Marty's initial comments were, well, it's a lot of things, Jonathan. We're going through some of them, but we can't point to one individual pop benefited the company in Q1. It's just a culmination of a number of items.

[Jonathan Reeder, Analyst at Wells Fargo]

All right, great. Yeah, it sounds like things are on track. And hopefully, can keep them that way throughout the remainder of the year. I did want to shift quickly to the GRC. Previously, you mentioned that a settlement could potentially come either before or after the hearings.

[Jonathan Reeder, Analyst at Wells Fargo]

As such, do you believe a more expansive settlement or even a global settlement could still be achievable? Or just based on the comments you're making today, is that ship sailed?

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

I don't know if I can really honestly answer that, Jonathan. I mean, one of the things we did when we couldn't reach a global settlement, we went back and we looked at previous rate cases with other water utilities in the state. And it's really been a mixed bag. I mean, we've where there's been a fully reached settlement, but then it takes twelve months to a year and a half to get that settlement approved within the commission. We've seen two other companies get a settlement and get being done close to being on time.

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

So it's been really kind of a mixed bag. And that's why I go back to kind of in my analysis, what's the commissioner saying? Because the commissioner is really the assigned hearing officer. What's the judge saying? And what are the advocates saying?

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

And I suppose there's always a chance you could still reach a global settlement here during the month of May. But the indicators we are, as we're moving into the pre conference hearings and taking their report and our report and things that are identified that there's no disagreement on, we're identifying those and we'll submit that to the judge and then see what he says. So I suppose there's always hope, but from my position, I'm happy things are tracking on schedule, couldn't reach a global settlement, can we still reach something? Hard to tell, but we need to proceed as if we're not going to, and head into the hearings in May and see where it goes from there. But generally very happy with the fact that the commissioner, the advocates, the judge have all been aligned saying the same thing.

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

We're going to do everything we can to get this rate case done on time.

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

Jim, I guess the only the only thing I'd add Jonathan is remember, there's kind of two areas that where there was significant, you know, differences between us and the Cal Advocate that being the approach to the decoupling. And the second is, we identified some significant capital expenditures that are required in our system. And those two aspects of our rate case are kind of permeate throughout a lot of the different elements within the rate case. And so there was a big difference between where we were coming from and where CalAfrica was coming from on the larger issues. And so it's not really a surprise that we weren't able to get a global settlement.

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

But I think if we can knock out some of the smaller items that Marty was talking about, it puts us in a good position, I think, to move forward timely on the case.

[Jonathan Reeder, Analyst at Wells Fargo]

Yeah, so I mean, that's what was going say. Like, I mean, in the past, you've kind of reached like, you know, call it a partial settlement, I mean, it sounds like that's what you've kind of got here again with some of these undisputed items that take those off the table. But like you said, Jim, I mean, based on the last GRC CapEx decoupling, those were major issues that ultimately had to get fully litigated. And it sounds like that's where we are again this time around.

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

Yeah, think that's right, Jonathan. I think that's right. And that's why this next step, looking at their report, our report lining up things that there's no disagreement on and submitting that to the judge, that may very well take those elements off the table. And then we just focus on the major areas of disagreement, which would be rate design, decoupling, etcetera.

[Jonathan Reeder, Analyst at Wells Fargo]

Yeah. Okay. And then last question for me, and I apologize if you did mention it. But where do you stand on renewing the ATM program? And what size do you think you'll need when you do renew it?

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

So we're in the process of kind of working with banks and whatnot. We do intend to renew it. And it'll probably be the spring, sometime early this spring. We always like to have that availability for us to take advantage of the equity markets when opportunities and the timing is right for us to do so. At this point, we're still in the process of reviewing with our finance committee the size of the ATM and the different features that we may want to pursue on it.

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

I would expect we would announce something probably early spring here in the not too distant future.

[Jonathan Reeder, Analyst at Wells Fargo]

Okay, great. Thanks so much for the time this morning.

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

All right. Thanks, Jonathan.

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

Thanks, Jonathan.

[Operator]

There are no more further questions at this time. I would like to turn the call back over to Martin Karpelnicki for closing remarks.

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

Great. Thanks, Desiree. Well, thanks everyone for joining us today. Q1 is done and in the books as they say, and we'll move on to Q2. And obviously, as things change with the general rate case, we'll look forward to updating everyone in July for our second quarter earnings call.

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

So thanks for calling in today. Any questions, feel free to reach out. And everybody, have a great day. Thank you.

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

Thank you.

[Operator]

This concludes today's conference call. Thank you all for joining, and you may now disconnect.

Participants

Executives

• James P. Lynch, Senior VP, CFO & Treasurer
• Martin Kropelnicki, Chairman, President & CEO

Analysts

• Angie Storozynski, Senior Equity Research Analyst at Seaport Research Partners
• Davis Sunderland, Equity Research Associate at Robert W. Baird & Co
• Jonathan Reeder, Analyst at Wells Fargo