Q4 2019 Earnings Call
Golden State water company we received approval on both the Water and Electric rate cases.
the water
In case sets new rates for the years 2019 through 2021 while the electric rate case sets new rates for 2018 through 2022. We continue to invest in the reliability of our systems spending a historical high of 136 million dollars in company funded infrastructure during the year off bulb.
American States Utility Services or a s u s we achieve the highest annual earnings per share contribution in its history as we continue to perform necessary construction work on the military bases. We serve lunch.
These results reflect a full Year's contribution from our newest base, Fort Riley as well as continued work with the US government on price adjustments and asset transfers.
Yes us provides operations maintenance and construction management services for water distribution and Wastewater collection and treatment facilities to 11:00 military bases, including some of the largest military installations in the United States, and we're well positioned to win more contracts in the coming years.
We remain committed to our communities Golden State water continued to spend with diverse business enterprises achieving results that were above the California Public Utilities commission's requirement for the 7th consecutive year.
In addition has continued to exceed the US government's requirements to hire small businesses to perform work on the basis it serves.
And we were proud to say that in 2019 our employees donated over fifty three hundred hours of community outreach and engagement in areas where they live and work.
We had American states water company continue our steadfast commitment to our customers broader communities shareholders employees and suppliers our financial results. Just one part of our efforts and success. I'll now turn the call over to Eva to review that Financial results for the court. Thank you Bob. Hello, anyone else to start without for supporter Financial results on flight eight Consolidated earnings for the quarter or 45 cents per share compared to thirty seven cents per share Home Interiors in 2018 as Bob mentioned or water electric segment strong fourth-quarter results with like new rates approved by the CPU usage decision on both our water or electrically cases.
Decreasing earnings for the fourth quarter and it was due to the timing of construction work performed this year versus last the management team executing a plan for construction work to be performed more evenly throughout 2019 while much of the construction activity in 2018 was performed towards the latter half of them. Yes, in fact construction activity levels or hires for the full year 2019 then the previous year.
So solid a the revenues for the fourth quarter increased by $200 as compared to the same period in 2018 while the revenue increased 5.3 million months into the new race approved in May of 2019 and effective January one 2019. There were also Revenue increases related to cpu-z approved so charges to recover previously incurred cost.
Electric
The new $700,000 higher due to new electric rates approved by the city using 2019 on the electric generate case.
The $4 decrease in Contracting Services revenues for the fourth quarter of 2019 was largely due to differences in the timing of construction work performs. Just doing 2019 a company or 218 previously discussed.
Turning to slide 10 on Water and Electric Supply parts were twenty three point two million dollars for the quarter the increase of one point six million dollar from centuries last year's any changes in supply cost for both the water electric fragments as compared to the adopted Supply costs are attracting balancing account.
Looking at total operating expenses, excluding. Consolidated expenses decreased 1.6 million versus the fourth quarter of 2018 due to a decrease in construction cost at us as a result of lower construction activity and lower depreciation expense at the wireless segment. Lower composite depreciation rates approved in the water generate case. These sequences were partially offset by increases in other operations and maintenance wage and poverty and other taxes.
Interest expense not of interest income and other increased by $900,000 due primarily to gain generated on investments held in the Thursday to Sunday retirement benefit plan. That's come here to losses incurred during the fourth quarter of 18.
Like 11:00 shows the ETF Bridge comparing the fourth quarter of nineteen with the same quarter of 2018.
This is live shows the full year results Consolidated earnings for 2019 were $2.28 per share the 2019 CTS the decision on the electric generator case with retroactive to January one 2018. And as a result, the cumulative retroactive earnings impact related to 2018 off for sure was recorded as part of our 2019 results, excluding this retroactive impact earnings per share for 2019 was charged $2.24 as compared to a dollar seventy two cents per share from 2018. That is an increase of 30%
Earnings from the water segment increased by $0.42 per share compared to 2018 mostly due to new water rates are provided in May of 2019 as well as a decrease in demonstrative in general expenses. There were also games on investments Housing Trust to find retirement plans as compared to losses incurred in 2018.
Finally, they were changes in the wireless segment affected income tax rate resulting from certain clothes will taxes and permanent items which increase the earning by Thursday. Which year for the year compared to 2018.
Moving on to the electric segment adjusted earnings for support and push are higher in 2018 after excluding the retroactive impact from the light 2019 CTS leave a case decisions related to the full year 2018.
Increase was due to new electric rates authorized in the decision partially offset by higher operating expenses and the higher electric and higher effective income tax rates.
Diluted earnings from s u s word for seven cents per share as compared to forty two cents per share for 18 largely due to operations at Fort Riley which come in Thursday in July of 2018. There was also an increase in National City Revenue at the other military bases resulting from the successful resolution of the same types of adjustments.
Awr parents earning increase $0.01 per share compared to 2018 do to lower state taxes recorded as a parent level.
Turning to liquidity on Friday 13 net cash provided by operating activities for 2019 was 116.9 million dollars as compared with 136% $89 for 2018 the decrease in cash from operating activity was due primarily to a decrease in Wireless customers usage long delays in receiving decision on the water electric generator cases and the refunding of 7.2 million dollars to customers related to the tax cuts and jobs.
these sequences
What partially offset by increased in cash resulting from the timing of the links of as a cash received for construction work at the military bases?
Go to see Wally invested $136 in company funded the capital projects in 2007 nineteen continuing our strong in dead level. We expect to invest a hundred twenty two hundred thirty-five million dollars in 2020.
You may recall that in last October. We amended the American States waters credit facility temporarily increasing it following capacity from 200 million to $200 to June this year.
Earlier this month awr receive a binding commitment lender for the option to revise the temporary increase of the credit facility to $260,000 due the end of this year.
We'll be able to exercise this commitment and have immediate access to the additional funds when needed the borrowing capacity. We were referred to $200,000 at the end of this year.
Go to see why there has the financing application on file with the cpuc. We intended we intend to issue long-term debt after the financing application is approved.
At this time, we do not expect American Stakes water to issue additional Apple t with that. I'll turn the call back.
Thank you Iva. I'd like to provide an update on our recent regulatory activity. As I mentioned 2019 was a big year for concluding rape cases. The final decision in the water General rate case allows us to invest 334.5 million dollars in capital infrastructure over the three-year rate cycle. This includes 24 million dollars of capital projects to be filed for revenue recovery through advice letters when those projects are completed.
as
Reminder the water segment has an earnings test. It must meet before implementing the second and third year step increases in the 3-year rate cycle.
I'm pleased to report that we have timely invested in our capital projects and achieved Capital spending consistent with the amount authorized by the cpuc.
As a result. Increases have been implemented for 2020 and are expected to generate an additional ten point four million dollars in water gross margin.
We continue to make prudent And Timely Capital Investments.
As such we expect an additional step increase of approximately 11.4 million dollars in the water gross margin in 2021 subject to the results of an earnings test off and changes to the forecasted inflationary index values.
You're currently preparing our next water General rape case, which will be filed in July of this year for new rates beginning in 2022.
In January 2020 Golden State water along with the three other large California Water Utilities requested a deferral of the date by which each of them must find cost of capital application. If approved the request would postpone this filing date by one year until until May 1st 2021 with a corresponding effective date of January 1st, 2022.
The Joint parties are currently awaiting the CPU response to this request
Cpuc. It's 2019 final decision on our electric rate case authorize new rates for 2018 through 2022.
Among other things the decision authorizes the company to construct all the capital projects requested in the application and provides additional funding for the fifth years added to the recycle, which total approximately 44 million dollars of capital projects over the 5-year rate cycle.
at all
So authorizes increased to the adopted electric gross margin by 1.2 million dollars for each of the years 2019 and 2020 by one point 1 million dollars in 2021 and buy 1 million dollars in 2022 the rate increases for 2019 through 2050 to are not subject to an earnings test.
We also filed an application with the cpuc for the development of a turnkey solar project estimated to cost 14.3 billion dollars.
As you'll see from this Slide, the weighted average water rate base as authorized by the cpuc has grown from $717 in 2018 to $916 in 2020.
Okay.
Compound annual growth rate of 8.5% rate base amounts for 2020 do not include the twenty point four million dollars of advice letter projects off as discussed previously.
Let's move on to a s u s on slide 17 2019 marks the highest annual earnings per share contribution from a s u s in the company's history month. We were awarded our first military contract in 2004. And today we have eight contracts covering eleven military bases earnings for 2019 cents per share higher than in 2018.
Major contributors to the higher earnings include a full year of operations at Fort Riley as well. As an increase in the management fee revenues at the other military bases with resulting from the successful resolution a various price adjustments during 2018 and 2019.
We continue.
Need to work closely with the US government for contract modifications relating to potential Capital upgrade work for improvement of the water and wastewater infrastructure at the military bases. We serve
during 2019 the u s government awarded a s u s twenty-three million dollars in new construction projects for completion in 2019 and 2020.
Completion of filings for economic price adjustments requests for Equitable adjustment asset transfers and contract modifications awarded for new projects promotion with additional revenues and dollar margin.
You're actively involved in various stages of The Proposal process at a number of other bases considering privatization.
U.s. Government is expected to release additional bases forbidding over the next several years.
Due to our strong relationship with the US government as well as our expertise and experience in managing basis. We're well positioned to compete for these new contracts.
Taking into account the twenty-three million dollars in new construction projects awarded in 2019. We reaffirm our previous guidance of $0.46 to fifty cents per share wage us is 2020 earnings contribution.
I'd like to turn our attention to dividends outline on flight 18.
2019 we increased the annual dividend by 10.9% to $1.22 per share.
American states water company has paid dividends to shareholders every year since 1931 increasing the dividends received by shareholders each calendar year for $65 off of years. Which place is it in an exclusive group of companies on the New York Stock Exchange that have achieved that result.
So updated our dividend policy in 2019 to achieve a compound annual growth rate in the dividend more than 7% over the long term.
Our strength and attractiveness to customers and shareholders alike is our stability continued timely investment in our systems and customer service are regulated operations in a constructive regulatory State of California a growing contracted Services business with strong market share and an unwavering commitment to reliability and safety mode.
Plan to invest 120 million to a 135 million dollars in capital at are regulated utilities during this year all white all while driving operational efficiency and delivering outstanding customer service.
For capital investment includes replacing and upgrading critical infrastructure as well as ensuring we can meet our customers needs for generations to come.
Like to conclude our prepared remarks by thanking you for your interest in American states water, and we'll now turn the call over to the operator for questions. Thank you. I'll take your questions to ask a question. You may press star than one on your telephone keypad. If you're using speakerphone, we ask you please pick up your handset before pressing the keys. So which are your question, please press Start once again, ladies and gentlemen that's started in one if you have a question.
And today's first question comes from Richard Verde of Coker and Palmer, please go ahead and Eva. Thank you both for taking my call just a couple of quick questions for the choices guide and see what needs to transpire for the segment to deliver earnings at the high end of that range. And then what would cause the earnings to be reported at the lower end of that range?
Well, that's a that's a difficult question Richard.
I would say that if we did more construction work at the basis that we serve we could be closer to the top end of that range. You know, we're actually putting projects in front of the government for New Capital upgrades and to the degree where able to get substantial project towards their birth that could help sort of on the construction front. So I I would say that's probably the you know, one of the one of the big big items another item is if we could get some money transfers we've asked requested that we get certain assets that are being handled by other providers that those get transferred to us if we can get those things further than that that be a pickup in our o&m revenues and into a certain degree in our construction revenues.
Okay, that's very helpful. Thank you. And then for the just for the follow-up question what basis are seeing the most activity box?
Well, you know, we've got some some pretty strong bases here, you know, sometimes you'll see a lot of activity at the sort of front end when you take over a base. And so so I'm not saying we're seeing activities across all the bases, but you know, the larger ones and particularly, I would say Eglin Air Force Base, Fort Riley Fort Bragg Fort Bliss off, you know, those those are the basis that are really larger than I would say some of the other bases and so that that's where we're seeing seeing a lot of activity.
Okay. Okay. Great. Thank you for the time guys. Appreciate it. Thank you gentlemen as a reminder if you'd like to ask a question Jonathan rieder at Wells Fargo, please go ahead.
Hey, Bob, and I hope you all are doing well.
Thanks, Jonathan. You too.
So I got a few questions here. I was hoping you could help me understand. What drove the gross margin higher in 2019 Golden State office or company cuz it looks like the gross margin was up more than $18 million, you know, which exceeds I know you're kind of saying the the water GRC would take it up 7.1 million and the electricity combined kind of 18 and 19 would be like 3 and 1/2. So there's kind of like, you know, another seven million or so of gross margin increase from what was driving that way.
Well that we're going to take a quick look here and the so to get back to this number you're referencing here.
Are you looking at the gross margin Johnson in terms of Golden State water in totality?
Correct.
Yeah, ma'am. I'm showing it at like just under $255 million in 2019 versus $236 million in 2018.
Just taken the regulated Revenue plus the total supply cost.
Yes. Well, that's not inconsistent with what son what's in the k?
So I think our gross margin for water increased by Thirteen million dollars for the year and for electric margin increased by 5000 for the year. So at least be million total. Yeah eighteen million total, right and I'm saying like you kind of said the water GRC wage increase
gross margin by like seven point one and the electric side I think would be about 3 and 1/2 million. If you combine the eighteen and nineteen brass margin increases together so long. I'm just trying to understand what that additional, you know, seven million total between the two.
I came from
What other revenues are?
Okay, I guess I thought you know between the ram as well as the ncba and everything, you know, the the rest of the gross margin was kind of locked in their home.
Right. So now not all of our customers are covered under the ram.
Some of the uptake there was due to non non Ram customers. I would say
And also I believe in 2018 Jonathan we we do have we do have a penchant balancing account at the Water Club segment and and Electric in 2018. Our pension costs actually actual calls actually was lower than the balance the authorized patient cost for that matter. We have to decrease revenue and decrease expenses for 18 have no impact to earnings but then it kind of look at 18,000 goes margin would be lower than the true adopted number because we have to we have to approve the lower revenue and the lower expenses for that account. So so probably what the same thing to do is to take the twenty one cents that's in the press release.
and come up with
What that changes cuz what what we've done in the press release is to try to eliminate these things that are sort of in the gross. Margin that are like the balancing account page. Yeah. Well that makes sense. So the balancing account that affects the the revenue number, you know use it positively or negatively and maybe there's some of that going between 18 and 19 megabits, right it would but you know all along we've been talking about the water margin, you know factored the lower depreciation expenses and the two large increase compared the adopted between the two years of about 16.3 million dollars. So so it's kind of bread comes out to that number and I can walk you to perhaps after the call so that if you take the $0.21 and multiply it by 37
Million shares and I guess you got to access the taxes.
I don't.
And what that comes out to be?
We can walk through that number. Okay, well detail maybe after the call number 10 or 11 million dollar range. So so it's not I'm not the Thirteen I guess.
Okay, and then in terms of the cost of capital extension request is p AO they express an opinion to the cpuc regarding your request or have they made you know, any data request that you offer any other water companies that that filed the request.
I don't recall them requesting any data request from us or what their or hearing what their position is on this.
I don't know whether other companies have talked about that or not, but but I don't believe.
It's not been a lot of lot to talk about that. Yeah. No, I'm just trying to kind of get a sense of like what milepost could be coming up since you know, obviously you got to prepare an application. I may first if there's you know extension is an approved and I guess kind of the time's ticking right? So I mean we're we're working on it.
We're working.
Just in case, you know, that's that's sort of what we got to do. And as you know the piece he's got a number of of the things that are looking at up there.
Given sort of a peek PG&E things. So we're we're waiting to hear it. But not sure what else we can talk about that. All right, but I guess if it doesn't want to express an opinion the cpuc can still I guess, you know don't make a decision, you know, unilaterally one way or the other.
Yes, they can okay, and then even can you explain the rationale behind, you know temporarily increasing the credit facility capacity and essentially kind of just delaying the long-term debt issuance into twenty-twenty. Like is it connected to the office the capital or you know Johnson we file financing application. You the cpuc just to authorize as more long-term debt amount in the next few years. So we're just waiting for that finance application to be approved. So the temporary increase in the in the bridge loans, we need to get us over that period of time so we can issue that once we got the financing application approved. Okay. Do you need the CPU actually approve? You just kind of issue with gotcha? Okay. Well this month.
Let's keep going down. So maybe it's working out on the the
The solar project What's the timing for acquiring that I know your 10K said like you to approval was expected from you know the cpuc and then just want to verify that that $14 million is incremental kind of a 44 million of capex approve part of the GRC. Yeah. So answer your second question first. Yes. It is incremental to the $44 million if it gets approved, you know, we're we we hope it will and the timing of it is such as we've already got this or TurnKey provider already lined up and then it's just a matter of giving them. Go ahead to get the project done. I don't think it's don't recall what we put in the cave. It's probably six six months to get the project done once we get
Approval by the commission. Okay. I'll take them on the construction time frame. Yes. Okay, and then I appreciate you I would ask for the water rate. If you didn't give appreciate that. What's the what's the electric rate base authorizing 20/20?
We have done number. I believe it's in the in the slide.
well
You know, it's about $52 million for 2019. So, let's see 2026.
You know, we we plan to spend, you know, we authorize forty four million over, you know, five year period of time so I think you can thinking about ten to twelve million dollars increase each year in terms of the catbox. This is not even including the dollar authorized under the water fire mitigation p.m. We seat that we use so I mean you also have to factor in the depreciation and the solar project, you know, but I don't want them thinking you could just add 12 months or not. Do you got to you got to take a portion of the appreciation but
Right, but I mean essentially that that fifty million.
My rebate on the electric side sounds like it's going to be growing, you know, pretty healthy over the next four or five years between back at facts. And on the solar project approved. Definitely. Yeah, I I think that's that's a fair comment given the solar given the Wildfire mitigation plan expenditures and then the $44 a month. Okay, and then lastly in terms of the Consolidated capital structure is your goal to you know, keep the the Consolidated the parents capitalized in line with you know, with approved at the utility or in other words, you know, just 57% equity for the foreseeable future. That's the case.
Okay, great. Thanks so much. I appreciate you taking the time. Thank you, Jonathan. Thanks Jonathan and ladies and gentlemen as a final reminder. If you'd like to ask a question, please press star than the one at this time. We'll pause momentarily to assemble our roster.
And ladies and gentlemen concludes our question-and-answer session. I'd like to turn the conference back over to Bob sprowls for any closing remarks.
Thank you, Rocco. Just wanted to close today by thanking you all for your participation today and letting you know. We look forward to speaking with you next quarter. Thank you, and thank you sir. This conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.