Q4 2019 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to full year fourth quarter 2019 financial results Conference call.
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Proceed with today's call.
You May proceed.
Thank you operator, welcome to the full year and fourth quarter, 2019th financial results conference call for CDW crude.
Presenting today are Earth Warrensburg, chairman of the Board, President and Chief Executive Officer, and James venture Chief Financial Officer for those who would like to follow along slides accompanying our remarks are available on our website at www Dot H. JW group dotcom.
Before we begin today's presentation I would like to remind you that this presentation and related materials posted on our website may contain forward looking statements. These statements are based on estimates and assumptions made by the company in light of its experience historical trends current conditions and expect to future. This stuff.
As well as other factors that the company Pee Dee are appropriate for under the circumstances.
Many factors could cause the company's actual results and performance of differ materially from those expressed or implied by the forward looking statements.
For a description of some of this factors that could cause actual results to be different from statements. This presentation refer you to the financial results press release and to our most recent form 10-K 10-Q, an 8-K filed with Securities and Exchange Commission copies of which may be obtained on from our website.
All forward looking statements are made us today and as you there'll be group disclaims any duty to update or revise such statements.
You had the opportunity to ask questions at the end of the presentation.
As a reminder, this webcast is being recorded an archive will be available until April 27, 2020, you can access the press release and the webcast on their website.
I will now turn the call for two Eric.
Thank you Susie welcome everyone and thank you for joining US probably America Thornburg and it is my honor to serve as chairman President and CEO of STW group, along with Susie I'm very pleased to be here with Jim Lynch, Our Chief Financial Officer.
As a result of our transformative combination would Connecticut water. That's JW is now the second largest pure play investor owned water utility in the United States based on combined estimated rate base.
Together, our over 700 dedicated and passionate water professionals deliver safe high quality and reliable water and wastewater service to more than 1.5 million people in our local service area communities in California, Connecticut, Maine and Texas.
We are well underway with executing on our integration plan and delivering the benefits of our transformative combination to all of our customers communities employees, the environment and our shareholders.
Our internal integration management team has been harder work to leverage the merger benefits for all of our stakeholders and subsidiaries and over 125 projects spanning all aspects of our operations have been identified to drive US forward has a combined company.
Key initiatives include leveraging the increased scale of the combined organization and our strategic sourcing initiative with benefits starting in 2020.
Delivering on our 2020 business plan.
Successfully mapping data to allow for combined accounting processes and financial reporting.
And establishing a supplier diversity program to further support our local communities in Maine in Connecticut, and delivering on our regulatory commitment.
We're excited about the future and believe that these as well as other integration initiatives that are well underway will deliver meaningful benefits to all of our stakeholders and 2020 and beyond.
However, we have all this progress comes costs related to the closing and integration.
In connection with closing our transaction would Connecticut water, we incurred merger and integration related expenditures of $20.5 million net of tax or 72 cents per share in 2019.
These expenses are nonrecurring and include the cost of legal financial and regulatory advisors as well as regulatory commitments in Connecticut, and Maine and other Merck merger related expenses that are customary and combining two public companies together.
While implementation of our integration plan is ongoing we do not anticipate that significant expenditures for consulting support will continue in 2020.
With help from our consulting partners, we completed planning and execution of day, one activities necessary to ensure a seamless transition to our newly combined entity.
Also our integration management team completed the longer term planning necessary to efficient efficiently leverage the benefits and strengths of our operating entities across the organization.
We're incredibly proud of our employee teams and the partners. We worked with throughout 2019 to achieve these milestones and position us for success as a combined organization.
We're also very pleased to begin to move forward with a focus on realizing the combinations benefits for all of our stakeholders.
Separate and apart from our merger, we also incurred a significant nonrecurring charge of $6.7 million net of tax or 24 cents per share in 2019 related to the California Pcs decision to deny recovery of our 2018 what.
Patient memorandum account WSE may balance and resend, our use of the WCS a mechanism.
While our local water agency Valley water continues its call for a 20% reduction in water use from 2013 levels. The CPC concluded that since the reduction is no longer mandatory the mechanism is no longer needed.
Since our 2019, California General rate case more closely aligned authorize usage with actual usage, we do not believe the loss of the mechanism will have a significant effect on future results.
In light of the unique circumstances of this past year, notably the significant impact of the nonrecurring merger and integration related expenses of 72 cents per share and the WSE M&A charge of 24 cents per share on 2019 earnings we wanted to prefer.
Our guidance for our shareholders and other stakeholders on our 2020 earnings to give you a clear sense of the underlying strength of our company.
Consistent with the consensus of analysts estimates SGW group expects earnings per share to be within the range of $2.25 to $2.35 per share for 2020.
Jim will provide a detailed analysis of our financial performance in just a moment, but I wanted to first highlight a few additional milestones in 2019 outside of the merger.
There were a number of accomplishments in 2019 that standout including.
Investing over $138 million in our California, and Texas water systems and over $25.9 million invested in our new England utilities since the closing.
Achieving world class customer satisfaction levels or greater in Connecticut in Maine.
Increasing community engagement and customer satisfaction levels in California through a revamped and expanded outreach program.
Celebrating a milestone agreement with the coastal mountain land Trust in Maine to further demonstrate our reputation as a strong steward of the environment.
Securing several legislative victories in Texas, including fair market value legislation and the establishment of an infrastructure replacement surcharge.
Being recognized by our peers and the EPA for our commitment to excellence for the design build of the Montevina water treatment plant project and for the advances in asset management and water treatment practices in San Jose and in Connecticut for our water treatment practices and for our water safety Education program.
And another successful year of meeting hi, drinking water standards and environmental regulations, delivering on our commitment to public health and environmental stewardship, which we discussed in our new sustainability report issued on February 12 that is accessible on our website.
These accomplishments demonstrate the strength of our teams and their ability to deliver results reinforcing our confidence in our employees and our shared future.
I'll now turn the call over to Jim who will review our financial results and 2020 forecast after Jim's remarks, I will address regulatory and other business matters. Jim. Thank you Eric as Eric mentioned, our fourth quarter, an annual operating results reflect the October 9th 2019 closing of our merger with.
Connecticut water.
With significant costs related to the transaction, including the Connecticut and main customer credits now behind US we look forward to 2028 and the benefits of a full year of activity from our new went operations.
Our 2019 results also reflect the increased use of our California surface water supplies as well as the impact of writing off our 2018 and 2019 WCS may balances.
As stated in our third quarter earnings call. The CPSC issued two conflicting proposed resolutions for the advice letter we filed requesting recovery of our 2018 WCS may balance.
As a result, the company established a reserve against the recorded balanced on December 19th 2019, the CPC denied recovery.
Of the balance, citing the elimination of mandatory conservation requirements to that end use of the WCS may was rescinded effective January onest 2018.
Looking ahead, we believe the better on achieved in San Jose Water is 2019 general rate case between actual unauthorized usage and greater recovery of our fixed cost in the service charge will minimize the need for the WCS may to achieve future authorized returns.
The guidance, we are providing for 2020 reflects this alignment and the higher fixed charge recovery by San Jose water with no significant changes in customer usage.
In addition, we have modeled and average share of surface water production and no change in our California cost of capital.
In Connecticut, we considered the impact of our one year regulatory stay out and in Connecticut, and main timely recovery of capital investments through our Wicca and whisk mechanisms.
In Texas, we expect organic customer growth will continue at the same pace, we experienced in 2019.
Turning to the 2019 results fourth quarter revenue was $125.8 million at 27.1 million dollar increase over reported fourth quarter 2018 revenue of 98.7 million.
Net loss for the quarter was $5.5 million or 19 cents per diluted share. This compares with $8.8 million of net income or 38 cents per diluted share in the fourth quarter of 2018.
During the 2019 fourth quarter increased usage contributed 14 cents per share and rate increases contributed 10 cents per share.
These increases were offset by merger closing cost and integration planning cost of 30 cents per share increased interest on long term debt of 13 cents per share and a loss from net Connecticut water activity of 10 cents per share.
In addition loss of the WCS may reduce net income by nine cents per share and increased general and administrative expenses.
By eight cents per share.
Turning to our fourth quarter comparative analysis, the $27.1 million increase in revenue. We experienced was primarily attributable to $21.7 million earned by Connecticut water subsequent to the merger close a $4.3 million, increasing customer usage and $2.9 million in rate.
Increases primarily attributable to pass through water rates.
These increases were partially offset by a 2.7 million dollar decrease resulting from the rescission of the WCS may.
Water production expenses increased $7.2 million compared to the fourth quarter of 2018 increase was primarily due to $5.9 million and new expenses from the addition of Connecticut water operations higher per unit cost for purchase water and power of $1.9 million and $1.5 million.
Higher customer usage.
The expense increases were partially offset by a $2.6 million decrease in cost recovery balancing and memorandum accounts.
Other operating expenses increased $31.3 million during the quarter as a result of $13.2 million and higher general and administrative expenses $6.5 million and higher depreciation expenses.
And a $6 million increase and merger expenses related to the Connecticut water acquisition.
In addition, we incurred $3.4 million and higher property taxes, and other non income taxes, and 2.2 million in higher maintenance expenses.
Excluding merger costs the increase in other operating expense expenses was primarily as a result of inclusion of Connecticut water activities post acquisition and integration planning.
Turning now to our annual restore 2019 revenue with towards one point.
Point $5 million, a $22.8 million increase over the same period last year.
Net income for the year was $23.4 million or 82 cents per diluted share compared to 38 million or 1.82 per diluted share in the same period and 2018.
Diluted earnings per share for the year were positively impacted by the increased use of surface sort of California, which contributed 29 cents per share and customer rate increases, which contributed 28 cents per share.
Addition, San Jose water balancing and memorandum accounts contributed 24% per share and interest on money market fund contributed seven cents per share.
These increases were partially offset by the establishment of a 28 TWC may reserve, which totaled 51 cents per share a 29 cents per share increase in other production cost and an increase in depreciation and amortization costs of six cents per share.
In addition interest on long term debt and pristine tends to chair and higher administrative and general expenses increased 12 cents per share.
Net Connecticut water activity resulted in a loss of eight cents per share and merger and integration related costs or six cents per there.
The increase in revenue was primarily attributable to the previously mentioned 21.7 million Dollar addition of Connecticut water revenue.
$11 million and cumulative rate increases and $6.4 million and customer credits established in 2018 related to the federal tax rate change.
Similar credits were required in 2019.
These increases were partially offset by the change in WCS may revenue of $19.8 million and a $2.1 million charge due to the proposed settlement we have with the CPC on the San Jose water customer billing matter.
Water production expenses increased $7.1 million in 2019, the increase was primarily due to $12.1 million of higher per unit costs for water and power and 5.9 million in new expenses as a result of our Connecticut water merger.
This increase was partially offset by an increase in the U.S in California of lower cost surface water of $11.3 million.
Other operating expenses increased 31.7 million in 2019, primarily due to 17.4 million in higher general and administrative expenses that include integration cost and $11 million and higher depreciation expenses.
4.1 million and higher taxes other than income taxes.
In addition.
Those increases.
Also were partially offset by 2.1 million in lower merger cost when compared to 2018.
Other income and expense included 6.5 million of interest income earned on money market fund investments from the proceeds of the company's December 18 equity offering and $6.2 million and new interest expense accrued for the acquisition financing debt and new term debt taken out by our California operations.
Turning to our capital expenditure program, we added 45.2 million in company funded utility plant additions in the fourth quarter of 2019, bringing total company funded additions for the year to $164.3 million. This includes $25.9 million of additions constructed by Connecticut water entity.
He's in the fourth quarter.
Our 2019 cash flows from operations increased $38.7 million or 42% over the same period in 2018.
The increase was primarily the result of at $37.3 million increase in the collection of balancing and memorandum accounts, a $3.6 million increased and accrued production expenses and a $9.7 million increase in general working capital and net income.
After adjustment for noncash items.
These increases were partially offset by an $11.9 million decrease in the net collection of taxes receivable.
On October Eightth of 29 team as JW group issued $510 million and unsecured senior notes with a maturity range of 10, 12, and 20 years at interest rates of 3.05%, 3.15% and 3.53% respect.
Fleet.
Proceeds from the note issuance were used to partially financed the merger with Connecticut water.
In addition on March 28, 2019, San Jose water issued $80 million and unsecured senior notes with 30 year lives at an interest rate of 4.29%.
Proceeds from the note issuance were used to refinance short term borrowings.
At the end of the year, we had $138 million available on our bank lines of credit for short term financing of utility plant additions and operating activities.
With that ill stop and turn the call back over to Eric. Thank you Jim SGW group continues to deliver on our core growth strategy of investing in high quality water systems to provide safe and reliable water service to customers and communities and earning a fair return on those investments in the last decade alone more than one by.
Billion dollars has been invested in the local water systems. So the communities, we serve in California, and Texas and over the same period, Connecticut water has invested over $450 million in the local water systems of the communities. It served in Connecticut in Maine.
As well documented that our nation's water and wastewater systems are in need of significant investments utility regulators have historically recognize this need and accordingly have enabled regulated water utilities to make such investments.
In 2020, STW group subsidiaries plan to invest over $220 million and infrastructure improvements to serve our customers in California, Connecticut, Maine and Texas.
In addition in December of 2019, San Jose Water filed an application with the California Public Utilities Commission further deployment of advanced metering infrastructure or smart water meters throughout its service area.
Our filing seeks approval of capital investments of approximately $100 million over the next for years to install the network and meters by January 2025.
And my technology would allow our customers to manage their water use more efficiently through hourly meter reads and be alerted of leaks in a timely manner. This allows both utilities and customers to meet the state of California is policy of conservation as a way of life.
And maintain our longstanding commitment to protect and preserve the environment.
Efficiently manage and protect the valuable resource.
Processing schedule dissipates, a final decision from the CPC by the end of Twentytwenty.
In January of 2020, San Jose water, along with the three other class a water utilities requested a one year deferment on their cost of capital filings, which would otherwise be due on may onest of this year postponing the filing one year would alleviate administrative processing costs.
These as well as the commission staff and provide relief for both commission and utility resources already strained by numerous other proceedings at commission decision on this request is expected shortly and we will of course, let you know when its received.
Looking ahead, Connecticut waters first general rate case since 2010 will be filed later this year with rates to take effect in the first quarter of 2021.
In January of 2020, we file forward infrastructures charge through the water infrastructure and conservation conservation adjustment program or Wicca in Connecticut.
This request covers $20.4 million in qualified infrastructure investments with incremental annual revenue of $2.2 million. We expect a decision on this filing in late Q1 or early Q2.
We're also preparing to file general rate case for San Jose water in January of 2021, which will establish rates for 2022 through 2024.
Main water files for rates by operating Division and currently has a general rate application filed for the Skowhegan Division.
The main water also plans to file a general rate application for the Camden Rockport Division in the summer of 2020 for rates to take effect in 2021.
Main water also filed annually for infrastructure surcharges for eligible projects through the water infrastructure surcharge program or whisk.
Just this week main water received approval from the main PC for infrastructure surcharges in four divisions effective March Onest, 2020, recognizing $4.3 million and critical infrastructure investments and increasing revenues by $367000.
Yeah.
These various filings include proposed capital investments that over the long term benefit customers communities and shareholders as they enhance SGW his ability to deliver safe high quality and reliable water service, while increasing rate base the earnings engine for the company.
It's worth noting that San Jose waters current general rate case decision covering the years 2019 through 2021, not only established a three year capital program, a $320 million, but also increased the service charge and adjusted the level of water sales necessary.
To deliver our revenue requirement, allowing for greater cost recovery from the fixed charge and higher revenue stability overall.
We saw the benefit of this in 2019 as actual usage aligned more closely with projected usage validating our efficient regional utility business model and providing a realistic opportunity for the company to earn its authorized rate of return.
Looking ahead I am optimistic about SGW groups future success, particularly now that the headwinds of merger costs and usage per tonne projections are largely behind us to achieve our goals. We're working diligently to support the growth of our Texas water utility, which has nearly tripled in size through organic growth.
The acquisitions since 2006 increase our capital investments to deliver safe and reliable service to our local communities and grow the rate base for all of our operating entities.
Deliver the benefits of our transformative combination to all stakeholders and continue to seek acquisition opportunities that create value for our stakeholders.
The prudent management of our business and financial resources continues to be fundamental to our growth and our ability to return capital to shareholders.
Demonstrating the company's strong commitment to our shareholders in January of 20, Twond empty would authorize a 6.7% increase in SGW group's 2020 dividend to one dollar and 28 cents per share as compared to the total dividends paid in 2019.
This dividend dividend increase brings us more in line with our target dividend payout of between 50 and 60% of recurring earnings.
We're proud to have continuously paid a dividend for over 76 years and to have increased the annual dividend in each of the last 52 years delivering value to our shareholders.
Lastly, I want to recognize some key executives who have retired after distinguish careers at San Jose water.
Dana Drysdale, our vice President of information systems, Craig Giordano, our Vice President of Engineering, and Palle Jensen Executive Vice President are all exceptional water professionals, who each share at least 25 years of service to the company and the industry.
They are well recognize and respected by our peers and within the organization for their contributions and accomplishments in establishing STW has an industry leader in the areas of information technology Engineering and regulatory affairs, we wish them all the very best.
With that I'd like to turn the call back to the operator for questions.
Thank you as a reminder to ask a question you read the press Star one your telephone.
So to your question press the pound Keith.
Please standby levy compiled the culinary west there.
Once again, ladies and gentlemen, if you have any questions or comments. Please press star then one.
And we do not appear to have any questions in queue.
Very good. Thank you operator, and thank you all on the call today for your participation.
Yes, JW group was founded a 153 years ago, but we're just getting started our growth strategy investing in our utilities and enter earning a return coupled with our acquisition track record demonstrates that we are executing on our growth plan. We look forward to 2020. Thank you very much.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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Ladies and gentlemen, thank you for standing by welcome to four year fourth quarter 2019 financial results Conference call.
At this time all participants' lines are currently mode.
Because presentation will be a question answer session. That's question <unk> session, you would need to press star one I guess telephone.
If you like today's conference is being required.
Right right assistance, Please press star zero.
The conference over to Susie.
Do you.
I see what today's call.
You May proceed.
Thank you operator welcome to the full year as fourth quarter 29, <unk> financial results conference call for CW Cook.
Presenting today are Earth bonds bird chairman of the Board, President and Chief Executive Officer, and James venture Chief Financial Officer for those who would like to follow along slides accompanying our remarks are available on our website at www Dot <unk> JW croup Dot com.
Before we begin today's presentation I would like to remind you that this presentation everyday to materials posted on our website may contain forward looking statements. These statements are based on estimates and assumptions made by the company in light of its Exterran historical trends current conditions unexpected future that was up.
<unk> as well and other factors that the company because these are appropriate under the circumstances.
Many factors could cause the company actual results performance to differ materially from those expressed or implied by the forward looking statements.
For a description of some of the factors that could cause actual results to be different from statements. This presentation refer you to the financial results press release and <unk>. Most recent forms 10-K send you an 8-K filed with Securities and Exchange Commission copies of which I'd be obtained on our website.
All forward looking statements are made up today and as you they'll be group disclaims any duty to update or revise such statements.
I had the opportunity to ask questions at the end of the presentation.
As a reminder, this webcast is being recorded an archive will be available until April 27, 2020, you can access the press release and the webcast on our website.
I'll now turn the call for two Eric. Thank you Susie welcome everyone and thank you for joining US Hi, American Thornburg and it is my honor to serve as chairman President and CEO, That's true W. group, along with Susie I'm very pleased to be here with Jim Lynch, Our Chief Financial Officer.
As a result of our transformative combination would Connecticut water. That's true W. Is now the second largest pure play investor owned water utility in the United States based on combined estimated rate base.
Together, our over 700 dedicated and passionate water professionals deliver safe high quality and reliable water and wastewater service to more than 1.5 million people in our local service area communities in California, Connecticut, Maine and Texas.
We are well underway with executing on our integration plan and delivering the benefits of our transformative combination to all of our customers communities employees, the environment and our shareholders.
Our internal integration management team has been harder work to leverage the merger benefits for all of our stakeholders and subsidiaries and over 125 projects spanning all aspects of our operations have been identified to drive us forward as a combined company.
Good initiatives include leveraging the increased scale of the combined organization and our strategic sourcing initiative with benefits starting in 2020.
Delivering on our 2020 business plan.
Successfully mapping data to allow for combined accounting processes and financial reporting.
And establishing a supplier diversity program to further support our local communities in Maine in Connecticut, and delivering on our regulatory commitment.
We're excited about the future and believe that piece as well as other integration initiatives that are well underway will deliver meaningful benefits to all of our stakeholders and 2020 and beyond.
However, with all this progress comes costs related to the closing and integration.
In connection with closing our transaction would Connecticut water, we incurred merger and integration related expenditures of $20.5 million net of tax or 72 cents per share in 2019.
These expenses are nonrecurring and include the cost of legal financial and regulatory advisors as well as regulatory commitments in Connecticut, and Maine and other merger related expenses that are customary and combining two public companies together.
Well implementation of our integration plan is ongoing we do not anticipate that significant expenditures for consulting support will continue in 2020.
With help from our consulting partners, we completed planning and execution of day, one activities necessary to ensure a seamless transition to our newly combined entity.
Also our integration management team completed the longer term planning necessary to officially efficiently leverage the benefits and strengths of our operating entities across the organization.
We're incredibly proud of our employee teams and the partners. We worked with throughout 2019 to achieve these milestones and position US for success was a combined organization.
We're also very pleased to begin to move forward with a focus on realizing the combinations benefits for all of our stakeholders.
Separate and apart from our merger, we also incurred a significant nonrecurring charge of $6.7 million net of tax or 24 cents per share in 2019 related to the California Ptcs decision to deny recovery of our 2018 was.
Nation Memorandum account.
See I may balance and resend, our use of the WCS mechanism.
While our local water agency Valley water continues its call for a 20% reduction in water use from 2013 levels. The CPC concluded that says the reduction is no longer mandatory the mechanism is no longer needed.
Since our 2019, California General rate case more closely aligned authorize usage with actual usage, we do not believe the loss of the mechanism will have a significant effect on future results.
In light of the unique circumstances of this past year, notably the significant impact of the nonrecurring merger and integration related expenses of 72 cents per share and the WCS. They charge of 24 cents per share on 2019 earnings we wanted to price.
<unk> guidance for our shareholders and other stakeholders on our 2020 earnings to give you a clear sense of the underlying strength of our company.
Consistent with the consensus of analysts estimates SGW group expects earnings per share to be within the range at $2.25 to $2.35 per share for 2020.
Jim will provide a detailed analysis of our financial performance in just a moment.
I wanted to first highlight a few additional milestones in 2019 outside of the merger.
There were a number of accomplishments in 2019 that standout including.
Investing over $138 million, and our California, and Texas water systems at over $25.9 million invested in our new England utilities since the closing.
Achieving world class customer satisfaction levels or greater in Connecticut in Maine.
Increasing community engagement and customer satisfaction levels in California through a revamped and expanded outreach program.
Celebrating a milestone agreement with the coastal mountain land Trust in Maine to further demonstrate our reputation as a strong steward of the environment.
Securing several legislated victories in Texas, including fair market value legislation and the establishment of an infrastructure replacement surcharge.
Being recognized by our peers and the EPA for our commitment to excellence for the design build of the Montevina water treatment plant project and for the advances in asset management and water treatment practices in San Jose and in Connecticut for our water treatment practices and for our water safety Education program.
And another successful year of meeting hi, drinking water standards and environmental regulations, delivering on our commitment to public health and environmental stewardship.
Which we discussed in our new sustainability report issued on February 12 that is accessible on our website.
These accomplishments demonstrate the strength of our teams and their ability to deliver results reinforcing our confidence in our employees and our shared future.
I'll now turn the call over to Jim who will review our financial results and 2020 forecast after Jim's remarks, I will address regulatory and other business matters. Jim. Thank you, Eric as Eric mentioned, our fourth quarter and annual operating results reflect the October 9th 2019 closing of our merger with.
Connecticut water.
With significant costs related to the transaction, including the Connecticut and main customer credits now behind US we look forward to 2028 and the benefits of a full year of activity from our new went operations.
Our 2019 results also reflect the increased use of our California surface water supplies as well as the impact of writing off our 2018 and 2019 WCS may balances.
As stated in our third quarter earnings call. The CPSC issued two conflicting proposed resolutions for the advice letter we filed requesting recovery of our 2018 WCS balance.
As a result, the company established a reserve against the recorded balanced on December 19th 2019, the CPC denied recovery.
The balance, citing the elimination of mandatory conservation requirements to that end use of the WCS may was rescinded effective January onest 2018.
Looking ahead, we believe the better on achieved in San Jose Water is 2019 general rate case between actual unauthorized usage and greater recovery of our fixed cost in the service charge will minimize the need for the WCS may to achieve future authorized returns.
The guidance, we're providing for 2020 reflects this alignment and the higher fixed charge recovery by San Jose water with no significant changes in customer usage.
In addition, we have modeled an average share of surface water production and no change in our California cost of capital.
In Connecticut, we considered the impact of our one year regulatory stay out and in Connecticut, and main timely recovery of capital investments through our Wicca and whisk mechanisms.
In Texas, we expect organic customer growth will continue at the same pace, we experienced in 2019.
Turning to the 2019 results fourth quarter revenue was $125.8 million, a 27.1 million dollar increase over reported fourth quarter 2018 revenue of 98.7 million.
Net loss for the quarter was $5.5 million or 19 cents per diluted share. This compares with $8.8 million of net income or 38 cents per diluted share in the fourth quarter of 2018.
During the 2019 fourth quarter increased usage contributed 14 cents per share and rate increases contributed 10 cents per share.
These increases were offset by merger closing cost and integration planning cost of 30 cents per share increased interest on long term debt of 13 cents per share and a loss from that Connecticut water activity of 10 cents per share.
In addition loss of the WCS may reduce net income by nine cents per share and increased general and administrative expenses.
By eight cents per share.
Turning to our fourth quarter comparative analysis, the 27.1 million dollar increase in revenue. We experienced was primarily attributable to $21.7 million earned by Connecticut water subsequent to the merger close.
Our point 3 million dollar increase in customer usage and $2.9 million in rate increases primarily attributable to pass through water rates.
These increases were partially offset by a $2.7 million decrease resulting from the rescission of the WCS may.
Water production expenses increased $7.2 million compared to the fourth quarter of 28.
The increase was primarily due to $5.9 million and new expenses from the addition of Connecticut water operations higher per unit costs for purchase water on power of $1.9 million and 1.5 million in higher customer usage.
The expense increases were partially offset by a 2.6 million dollar decrease in cost recovery balancing and memorandum accounts.
Other operating expenses increased $31.3 million during the quarter as a result of $13.2 million and higher general and administrative expenses $6.5 billion and higher depreciation expenses.
At a 6 million dollar increase in merger expenses related to the Connecticut water acquisition.
In addition, we incurred $3.4 million and higher property taxes, and other non income taxes, and 2.2 million in higher maintenance expenses.
Excluding merger costs the increase in other operating expense expenses was primarily as a result of inclusion of American water activities post acquisition and integration planning.
Turning now to our annual restore 2019 revenue with orders one.
Point $5 million, a $22.8 million increase over the same period last year.
Net income for the year was $23.4 million or 82 cents per diluted share compared to 38, Millett, Dan or 1.8 per diluted share the same period and 2018.
Diluted earnings per share for the year were positively impacted by the increased use of certain as water, California, which contributed 29 cents per share and customer rate increases, which contributed 28 cents per share.
In addition, San Jose water balancing and memorandum accounts contributed 24% per share and interest on money market funds contributed 17 cents per share.
These increases were partially offset by the establishment. The 2018 WCS May reserve, which totaled 51 cents per share a 29 cents per share increase in other production cost and an increase in depreciation and amortization costs of six cents per share.
In addition interest on the bottom debt and pristine seven chair and higher administrative and general expenses increased 12 cents per share.
Net Connecticut water activity resulted in a loss of eight cents per share and merger and integration related costs or six cents per there.
The Korean revenue was primarily attributable to the previously mentioned 21.7 million Dollar addition of Connecticut water revenue.
$11 million and cumulative rate increases and $6.4 million and customer credits established in 2018 related to the federal tax rate change.
Similar credits where required in 2019.
These increases were partially offset by the change in WCS may revenue of $19.8 million and a 2.1 million dollar charge due to the proposed settlement we have with the SAP you see on the San Jose water customer billing matter.
Water production expenses increased $7.1 million in 2019.
The increase was primarily due to $12.1 million of higher per unit costs for water and power and 5.9 million and new expenses as a result of our Connecticut water merger.
This increase was partially offset by an increase in the years in California of lower cost surface water of $11.3 million.
Other operating expenses increased 31.7 million and 29, Jane primarily due to 17.4 million in higher general and administrative expenses that include integration cost and $11 million and higher depreciation expenses.
4.1 million and higher taxes other than income taxes.
In addition.
Those increases.
Also were partially offset by 2.1 million and lower merger cost when compared to 2018.
Other income and expense included 6.5 million of interest income earned on money market fund investments from the proceeds of the company's December 18 equity offering and $6.2 million and new interest expense accrued for the acquisition financing debt and new term debt taken out by our California operations.
Turning to our capital expenditure program, we added 45.2 million in company funded utility plant additions in the fourth quarter of 2019, bringing total company funded additions for the year to $164.3 million. This includes $25.9 million of additions constructed by Connecticut water entities.
In the fourth quarter.
Our 2019 cash flows from operations increased $38.7 million or 42% over the same period in 2018.
The increase was primarily the result of at $37.3 million increase in the collection of balancing and memorandum accounts, a $3.6 billion increase in accrued production expenses and a 9.7 million dollar increase in general working capital and net income.
After adjustment for noncash items.
These increases were partially offset by an $11.9 million decrease and the net collection of taxes receivable.
On October Eightth of 2019, SGW group issued $510 million in unsecured senior notes with a maturity range of 10, 12, and 20 years at interest rates of 3.05%, 3.15% and 3.53% respect.
Flavor.
Proceeds from the note issuance were used to partially financed the merger with Connecticut water.
In addition on March 28, 2019, San Jose water issued $80 million and unsecured senior notes with 30 year lives at an interest rate of 4.29%.
Proceeds from the note issuance were used to refinance short term borrowings.
At the end of the year, we had $138 million available on our bank lines of credit for short term financing of utility plant additions and operating activities.
With that I'll stop and turn the call back over to Eric. Thank you Jim SGW group continues to deliver on our core growth strategy of investing in high quality water systems to provide safe and reliable water service to customers and communities and earning a fair return on those investments in the last decade alone more than one.
Billion dollars has been invested in the local water systems. So the communities, we serve in California, and Texas and over the same period, Connecticut water has invested over $450 million in the local water systems of the communities. It served in Connecticut in Maine.
As well documented that our nation's water and wastewater systems are in need of significant investments utility regulators have historically recognize this need and accordingly have enabled regulated water utilities to make such investments.
In 2020, SGW group subsidiaries plan to invest over $220 million and infrastructure improvements to serve our customers in California, Connecticut, Maine and Texas.
In addition in December of 2019, San Jose Water filed an application with the California Public Utilities Commission further deployment of advanced metering infrastructure or smart water meters throughout its service area.
Filing seeks approval of capital investments of approximately $100 million over the next for years to install the network and meters by January 2025.
And my technology would allow our customers to manage their water use more efficiently through hourly meter reads and be alerted of leaks in a timely manner. This allows both utilities and customers to meet the state of California is policy of conservation as a way of life.
And maintain our longstanding commitment to protect and preserve the environment and efficiently manage and protect the valuable resource.
Processing schedule anticipates, a final decision from the CPC by the end of Twentytwenty.
In January of 2020, San Jose water, along with the three other class a water utilities requested a one year deferment on their cost of capital filings, which would otherwise be due on may onest of this year postponing the filing one year would alleviate administrative processing costs on the until.
These as well as the commission staff and provide relief for both commission and utility resources already strained by numerous other proceedings at commission decision on this request is expected shortly and we will of course, let you know winds received.
Looking ahead, Connecticut waters first general rate case since 2010 will be filed later this year with rates to take effect in the first quarter of 2021.
In January of 2020, we file for it infrastructures charge through the water infrastructure and conservation conservation adjustment program or Wicca in Connecticut.
This request covers $20.4 million in qualified infrastructure investments with incremental annual revenue of $2.2 million. We expect a decision on this filing in late Q1 or early Q2.
We're also preparing to file general rate case for San Jose water in January 2021, which will establish rates for 2022 through 2024.
Main water files for rates by operating Division and currently has a general rate application filed for the Skowhegan Division.
The main water also plans to file a general rate application for the Camden Rockport Division in the summer of 2024 rates to take effect in 2021.
Main water also filed annually for infrastructure surcharges for eligible projects through the water infrastructure surcharge program or risk.
Just this week main water received approval from the main PC for infrastructure surcharges in four divisions effective March Onest, 2020, recognizing $4.3 million and critical infrastructure investments and increasing revenues by $367000.
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These various filings include proposed capital investments that over the long term.
Fit customers communities and shareholders as they enhance SGW his ability to deliver safe high quality and reliable water service, while increasing rate base the earnings engine for the company.
It's worth noting that San Jose water is current general rate case decision covering the years 2019 through 2021, not only established a three year capital program of $320 million, but also increased the service charge and adjusted the level of water sales necessary to.
To deliver our revenue requirement, allowing for greater cost recovery from the fixed charge and higher revenue stability overall.
We saw the benefit of this in 2019 as actual usage aligned more closely with projected usage validating our efficient regional utility business model and providing a realistic opportunity for the company to earn its authorized rate of return.
Looking ahead I am optimistic about STW groups future success, particularly now that the headwinds of merger costs and usage per tonne projections are largely behind us to achieve our goals. We're working diligently to support the growth of our Texas water utility, which has nearly tripled in size through organic growth.
The acquisitions since 2006 increase our capital investments to deliver safe and reliable service to our local communities and grow the rate base for all of our operating entities.
Deliver the benefits of our transformative combination to all stakeholders and continue to seek acquisition opportunities that create value for our stakeholders.
The prudent management of our business and financial resources continues to be fundamental to our growth and our ability to return capital to shareholders.
Demonstrating the company's strong commitment to our shareholders in January 20, Twond empty would authorize a 6.7% increase in SGW group's 2020 dividend to one dollar and 28 cents per share as compared to the total dividends paid in 2019.
This dividend dividend increase brings us more inline with our target dividend payout of between 50 and 60% of recurring earnings.
We're proud of continuously paid a dividend for over 76 years and to have increased the annual dividend in each of the last 52 years delivering value to our shareholders.
Lastly, I want to recognize some key executives who have retired after distinguished careers as San Jose water.
Dana Drysdale, our vice President of information systems, Craig Giordano, our Vice President of Engineering, and Pilate Jensen Executive Vice President.
Our all exceptional water professionals, who each share at least 25 years of service to the company and the industry.
They are well recognize and respected by our peers and within the organization for their contributions and accomplishments in establishing STW as an industry leader in the areas of information technology Engineering and regulatory affairs, we wish them all the very best.
With that I'd like to turn the call back to the operator for questions.
Thank you as a reminder to ask your question you we need to press star wind on your telephone.
So your question press the pound Keith.
Please standby levy capacity culinary west.
Once again, ladies and gentlemen, if you have any questions or comments. Please press star then one.
And we do not appear to have any questions in queue.
Very good. Thank you operator, and thank you on the call today for your participation.
Yes, JW group was founded in 153 years ago, but we're just getting started our growth strategy investing in our utilities and enter earning a return coupled with our acquisition track record demonstrates that we are executing on our growth plan. We look forward to 2020. Thank you very much.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.