Q3 2020 California Water Service Group Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the California water 2023rd quarter earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you need to press star one on your telephone keypad. Please.
Please be advised that todays call is being recorded.
If you require any further assistance.
Please press star zero, and an operator will be happy to assist you.
I would now like to hand, the conference over to David Healy, Vice President and corporate controller. Thank you and please go ahead Sir.
Thank you Bridget welcome everyone to the 2023rd quarter earnings results call for California Water Service group.
With me today is Martin Kropelnicki, our president and CEO Tom.
Thomas Smegal, our Vice President She 10, Chief Financial Officer, and Paul Townsley, Our Vice President of business development, and Chief regulatory Officer.
Replay dial in information for this call can be found in our third quarter earnings release, which was issued earlier today.
The replay will be available until February five 2021.
As a reminder.
Before we begin the company has a slide deck to accompany the earnings call. This quarter. The slide deck was furnished with an 8-K. This morning and is also available at the company's website at.
At Www Dot Cal water group Dot com.
Before looking at this quarters results, we'd like to take a few moments to cover forward looking statements. During the course of the call. The company may make certain forward looking statements.
Because these statements deal with future events, they are subject to various risks and uncertainties and actual results could differ materially from the company's current expectations.
Because of this the company strongly advises all current shareholders as well as interested parties to carefully read and understand the company's disclosures on risks and uncertainties.
And in our form 10-K form.
<unk> form 10-Q press releases and other reports filed from time to time with the Securities and Exchange Commission.
I'm going to pass it over to Tom to begin.
Thank you, Dave and good morning, everyone, so pretty exciting quarter here for us at California Water Service group.
We get to talk quite a bit about our California general rate case in some of the other things that are going on in the quarter I'm going to go through the slide deck as Dave mentioned and I'll refer to slide numbers as we go through the presentation as well as the other speakers.
I'm going to begin on slide six which is a slide about the recognition of the 2018, California General rate case [laughter]. So as most everyone knows at this point on October 14.
The California public Utilities Commission publish a proposed decision in our California, GRC. That's a delayed GRC that should have been effective on January 1st 2020, and the proposed decision approved the settlement that we had announced back in October.
2019, and it also proposed to adopt Cal water's positions on the disputed financial matters in the case and.
For the first two quarters of the year, we had been reluctance to our record regulatory assets for some of our continuing balancing account mechanisms such as the the Ram the MCB, a decoupling mechanism as well as our pension and medical cost balancing accounts because those accounts. So we did not know whether they.
Or probable for recovery.
We have concluded based upon the proposed decision and a couple of things subsequent to that.
That the.
The GRC decision is very probable to to award us those accounts on a continuing basis and so we are recognizing the regulatory assets associated with the water revenue adjustment mechanism modified cost balancing account.
And the pension medical cost balancing account regulatory assets and those will those add significantly to our revenue for the quarter and for the year to date. In addition.
The Commission will grant us interim rate recovery and since we now know the proposed decisions take on the revenue requirement for able to calculate what what is in the interim rates memorandum account and so we've also booked a regulatory asset.
For the interim rates memorandum account I did want to talk briefly about the subsequent event that is giving us further confidence in the general.
General rate case, and that is that on Tuesday, among other things that happened on Tuesday in the United States.
The.
The the Cal PJ the public advocates office issued their comments on the proposed decision and while they gave extensive comments on a variety of areas. They did not comment on the three major areas that were recovering here.
In other words their comments do not take issue with the proposed decisions grant of a continued.
Water revenue adjustment mechanism modified cost balancing account or pension medical cost balancing account and so we.
We feel very strongly that the final decision, which can be rendered by the commission no earlier than November 19th is going to allow those those balancing accounts for us and so that's that's very good news for the company.
In addition to those three items I would mention that as part of this rate case.
Our refunding to customers the excess deferred tax associated with the tax cut job Act.
Reduction in federal income tax rate and that refund is being applied it's applied to the customer rates and it's showing up in our income statement as a reduction to our effective tax rate and so you will see a lower effective tax rate for the company on a go forward basis as we respond to those excess.
Taxes, I do want to emphasize that these.
Assessments of probability do have some risk associated with them.
We are dependent upon the CP you see adopting the proposed decision with no material changes, but as I say given the evidence that we have right now we think that is likely and we would that's why we've gone ahead and included these in our third quarter estimates are around the third quarter earnings as health not not estimates and.
So turning to slide seven the result of that determination means that we have a very significant increase.
In our net income for the third quarter.
That is going from 42.4 million to 96.4 million.
As compared compared to 2019 earnings per share $1.94 for the third quarter.
As compared to 88 cents in the third quarter of 2019 on.
On a year to date basis on slide eight.
The net income is up it's up about 30 million. So it's $81.3 million up from 51.8 million in the year to date period of 2019 and that means our earnings per share is $1.66 on a year to date basis compared to one dollar eight on a year to date basis in 20.
19.
And then going through slide nine and slide 10, I'll go through very quickly just the other changes that we have to to earnings revenues and expenses are pretty.
Pretty standard for us.
The things that we've talked about in prior quarters. So we've increased operating expenses for wages and other things that just generally increased depreciation amortization.
We do have variations from time to time in our Unbilled revenue accruals and you'll see that on a couple of these slides as well as the mark to market adjustment that we have.
Some of our retirement plan assets.
So there's nothing nothing major either in the quarter or year to date period in those areas, but those do end up affecting earnings.
I do want to focus very briefly on slide 11, the earnings bridge on to emphasize the point about the third quarter earnings and if you if you're there on slide 11, you'll notice the first bar chart.
Change is that 80 cents.
Which were which is titled delayed recording of Q1 in Q2 regulatory assets and because we're recording the effect of the general rate case.
Through the third quarter in the third quarter that 80 cents in the first bar represents earnings that would have been achieved in the first two quarters of the year had the rate case been adopted on time and so we're putting this just highlighting this for you so that when we get to the third quarter of 2021 there.
There is a recognition that we're probably not going to earn $1.94 again per share in the third quarter of 2021, although obviously that would be nice if we could.
And.
Then I do want to focus on slide 13.
I think just to run through this again as a as a basis of calculation per for analysts and others thinking about the company stock.
The earnings power of the company and again, we're we're predominantly regulated utility in all four states and that is drives most of our our revenues and net income.
The California rate case, if it is.
If the proposed decision as adopted actually allows for a specific net income.
Not about $76 million in test your 2020 and that reflects the authorized equity return.
On the equity portion of 1.5 billion in rate base.
In addition to California, we have about $110 million of rate base in other states.
That should earn a similar equity return again on a normalized tests, you're kind of basis.
But do you remember that our equity returns on the regulated businesses are dependent on our cost being in line with adopted costs.
And also in particular in the other three states and New Mexico, Washington in Hawaii. Our returns are also affected by our water sales and as Paul will talk about in a minute beginning in 2023, we expect to the earnings in California will also be affected by water sales.
And.
Now, there's another point for the quarter and the year to date is.
To make sure that everyone understand that on an annual basis, we do not anticipate.
Net income effect from changes in our Unbilled revenue accruals or unrealized changes in the value of retirement assets the mark to market that we talk about from time to time.
Those factors through the third quarter, adding about 9.6 million to our year to date net.
Net income and so just be cognizant of that as we go toward the end of the year.
That we expect particularly the unbilled to drop back down to where it was at the at the end of 2019.
And then finally there are a couple of other factors that caused our earnings to be a bit higher than.
Then the otherwise core regulated earnings and those are unregulated activities.
Operation maintenance contracts.
The antenna leases for various things various cellular antennas on our our facilities.
The regulatory asset that we book associated with the equity portion of.
Construction.
Funding the PDC, if you will and then state tax timing differences can play a factor there.
And so just wanted everybody to be sure that happy to take questions on that as well.
Marty I'm going to turn it over to you to talk about kovar 19th.
Great. Thanks, Tom I want to give everyone a quick operational update.
With that backdrop, because like 19, but even with co at 19 and it was the worst fire scene.
Seasoning in California history. So in addition to co later, we had to deal with a number of fires and then folding in the public safety power shutdowns that we had throughout the state at various times during the state as well as a couple of earthquakes, it's been a very very busy year for operations.
We've we've opened our emergency operations Center totaled 18 times year to date, I think thats, a new record for us.
You see our emergency operation centers, we basically follow FEMA type protocol in terms of how we deal with emergency situations and very happy to say that despite a number of potential emergencies throughout the year. The company's operations have gone very very well and we wouldn't have any.
The major disruptions of water service or lack of water service, especially trying to fire season.
Having said that we still continue to operate with enhanced safety protocols to protect customers and employees from infections protecting employees and customers and public health. It remains our number one priority very.
Very happy to share with everyone and you may have seen this we.
We received the Stevie Award the Silver Stevie Award as most valuable employer for a covert a response that was out of 700 plus companies competing for a Stevie Award. So were very happy to win that award for our work on the coverage response and keeping our employees safe.
While dealing with the pandemic, we've seen an increase in customer accounts aging.
From the suspension of collection activities. If you recall early on.
In the process Cal water suspended our collections and shut off and it was further ordered.
Ordered by the government to do so, but we had done it prior to any any orders of the government because we recognize the need for water for our customers to help fight. The virus. So are over 90 balances as increased to about 5.4 million.
Only a portion of such amounts are typically uncollectible, we continue to monitor that very very closely we think it's indicative of the heart financial times as dependent because it people on people in order to shelter in place on and maybe been on some type of assistance program and not able to meet their ability to pay their bills. We.
We have increased our reserve for doubtful accounts by about $1.6 million and $2.7 million or roughly 50% of that balance is reserved for.
And we'll continue to monitor that as we move into the fourth quarter.
Our incremental expenses dealing with a co bid.
Or less than $100000 in the third quarter, which we think is good we do have a memo account in California, and also a memo type account and Hawaii and as most of you know a memo account you expense the cost and the right in the period, it's incurred that you track it off the books.
And when it gets to be a certain amount you potentially have the echo when you go back to the commission and seek recovery for those costs as they are incremental to what was planned and the business model.
So we continue to attract costs are a memo accounts associated with co bid.
And our operations water sales in aggregate have been closely adopted levels for about 95% of adopted sales in California with the increases in customer usage, obviously with people being home using more water.
That was offset by lower business in industrial uses during the quarter.
In terms of liquidity, our liquidity remains strong as of September Thirtyth, we had $113 million in cash and additional current capacity of $170 million for a line of credit. So liquidity has remained strong with the company throughout the pandemic and were positioned very well going into the fourth quarter I.
Im going to turn it over to Paul Townsley now for an update on California regulation.
Thank you Marty so turning to slide 15 is the California regulatory update.
It has been a very busy year for Cal water on the regulatory front.
As Tom mentioned the company received a proposed decision in October and in the PD or the proposed decision. The commission established a new revenue requirement for Cal water and $698.7 million for test year 2020.
In the <unk> and the proposed physician decision also authorized.
$828 million of new capital expenditures or new capital investments across the three years of the of the rate case cycle.
Now we filed a settlement agreement as a part of this rate case and the settlement agreement that we filed resolve the majority of the issues in the in the general rate case.
However, there were 11 items 11 litigated items.
Litigated financial items, which were not part of the settlement agreement that we filed with the commission.
And the proposed decision the judge.
Agreed with Cal water's position on all 11.
Litigated financial items, they were ruled in our favor by the administrative law judge and these included the.
The continuation of the water revenue adjustment mechanism Ram MCB any.
Continuation of the sales reconciliation mechanism or SRM.
A continuation of the pension and healthcare balancing accounts.
Inclusion of an equity component in our AFDC calculation.
And approval of capital projects for a am I are advanced meter infrastructure.
And for some water quality or water water treatment projects down in the Los Angeles area.
The commission is set to rule on the proposed decision.
Okay.
Early asked on its November 19th open meeting.
I will also note on slide 15 the.
Cal water along with the other parties have filed a request for rehearing.
On the August 27th decision by the commission, which bars Cal water and others from continuing.
To use the Ram MCB a bigger.
Beginning in our case in our Twentytwenty, one rate case filing which will be effective in 22 23.
2021, as I said, our 2020 has been a busy year 2021 will also be a busy year because as I. Just mentioned, we will be filing our 2020 one rate case next spring.
And we will also be filing our cost of capital case.
Next spring so we our regulatory team will be very busy next.
Next year, putting all of those together.
With that I will turn it back to Marty.
All right. Thanks, Paul.
And I'm going to give a quick update on the capital investment program for 2020.
Capital investments for the third quarter were $84.7 million up 16% over the same period last year year to date, our capital investments our $221.3 million.
$13.5 million year to date over 2019. The company has previously estimated would spend between 260 and $290 million. We think were in good shape going into the fourth quarter to achieve our capital investment program.
Goals for this year, despite what has been really a challenging operating environment.
In addition, we announced on October 13th that we had completed and put into service our palace Fairless water reliability project, which is the largest project in the company's history. Just just shy of 100 million dollar project to bring redundancy to the PD peninsula down in southern California. So it's nice to have that wrapped up the team did a fantastic job again.
Work in difficult.
Operating environments to get that project wrapped up this year.
Hot off the press yesterday, the CPC adopted a decision granting Cal water's request for additional $700 million of additional financing authority, which is expected to be used to help finance the company's capital program through 2025 or later. So this will allow us to go out and raise an additional $700 million or debt or equity to finance our capital growth.
Program.
And the next five years, so that that was a good good news as well.
One of the areas that weve been super busy and frankly, we're probably the busiest and business development. We've been probably in the last 20 years as BD and so Paul is going to give us an update on what's been happening on the on the business development side Paul.
Yes, sure on slide 17, I have an update for our business development efforts. How water is continue in a very strong new business development process and that has had a lot of success. This year.
Year to date, our new development efforts have put over 25000, new customer connections under contract representing over a 5% growth in new customer connections across the Companys subsidiaries.
So far in 2020.
The company has closed on closed on two acquisitions, the Rainier view water.
System in Washington.
And the clay, a low water and sewer system in Hawaii.
And we have entered into contracts for acquisitions of the Animus Valley water company in New Mexico.
And on the gunner ranch sewer system in California, which are both subject to regulatory approval.
On the regulatory approval side, we are still undergoing regulatory review on two other acquisitions.
That being the cop, a low water and sewer company in Hawaii.
And the preserve at Miller, 10, water and sewer in California. If you turn to slide 18, you can see some of the details of those projects and as I have just talked about.
In summary, our business development efforts are strong as you can see from this matrix and our pipeline of potential deals is robust.
And I will turn that back over to Tom.
Thanks, Paul.
So I'll just spend a couple of seconds going over our next two slides, which are the traditional bar charts, showing our capex and rate base, a little bit more certainty on on these two charts than in the past.
Obviously as Marty and Paul mentioned, the Capex authorized by the commission is getting closer to realization, we do have the midpoint of our target of $275 million for Capex.
That's very achievable here in in 2020, and how much we've done so far if you flip to the estimated regulated rate base.
We have updated this chart reflect the proposed decision rate based in California, and then as the rate base that I mentioned earlier on the call from the other states. So we estimate that our rate base in 2020 after the CPC adopts assuming they adopt the proposed decision and the settlement.
The California and other state regulated rate base is going to be about 1.6 billion that does not include the palace forties pipeline project.
I already mentioned that was close to 100 million that is one of these advice letter projects. We expect that to be included in rates pretty close to the started the year in 2021, or maybe even a little bit before that depending upon.
The timing as it flows through the rate case process here in California.
So that will be almost two thirds of the advice letter rate base that we show on this chart.
So I do want to emphasize though that 2021 and 22 22 a rate bases in.
In California are subject to the the earnings test.
We have been talking we didnt have an earnings test this year because of the rate case test year about.
Two out of every three years, we do have an earnings test.
That looks at the progress we've made on our capital investments.
And the effective rate.
The rate of return before at grants us additional rates in.
The districts in California, So I think we'll have an update on that by the time, we get to the year end call.
And what that increment will add to 2021. So what's shown in 2021 here is the the authorized rate base. If we were to pass all of those earnings tests.
And so that is what it is there and Marty I'll turn it over to you for wrap up.
Great. Thanks, Tom first of all I, just want to take a moment to thank Tom and Dave It's been a real busy couple of weeks.
Since we got the PD to figure all this out and they get everything booked and work with our independent registered certified public accountants Deloitte into so I just want to acknowledge you. Both of you have done an outstanding job in your team I know you have a lot of hours to get this stuff booked it's great to have the 2018 general rate case, I close to being wrapped up.
And getting that done it was disappointing for us that it was so late but it's nice to have it done and allowing us to kind of move forward and we've already been working on our 2021 general rate case as Paul mentioned.
As we move into the last six weeks what is truly been a a disruptive year, maybe the biggest disruptive year anyone our generation has ever experienced Cal water has continued to be well positioned when the execution of our business plan, including our business development growth plans and our dividend growth plans and our capital investment programs. Most importantly.
As our safety program that has allowed us to continue our operations, 91% of our employees have been at work every single day most of our employees our assets are in the field and they have been on the job every single day with cold weather, which required us to adopt a lot of very tight cobot product costs to protect them.
So we figure we're executing well, we positioned really well and I thought in a year that just hasn't had a lot of really good news I want to close with something that I think is fairly significant.
In late September the legislature and the state of California passed a bill that we have been working on to help us address some of our concerns regarding wildfire liability Senate Bill 13, 86, which is the bill which has now law after being signed by Governor Newsome specifies that fire hydrants connected to public water systems are generally not design our install.
All to provide water service to aid in the extinguishment of fires that threaten property not served by a water service provider our wildfires.
The government affairs team worked very hard with California lawmakers to get this slot put into place and we believe this is another significant milestone to further differentiate our risk profile from the profiles of the electric and gas utilities in the state of California. So it's a big step in the right direction kudos for the team forgetting that.
And with bridge it with that we're going to open it up for Q and a please.
As a reminder, ladies and gentlemen to ask the question at this time, Please press star and the number one thing you touched on telephone. If your question has been Nancy you wish to move yourself from the queue. Please press the pound key.
Please give ambarella compile the culinary roster.
Our first question comes from the line of Ryan Connors with Boenning <unk> Scattergood. Your line is open.
Hey, great. Thanks for taking my question.
And yeah, Hello, and thanks for a very comprehensive remarks, there on the quarter I think you provided a lot of the detail we need there, but couple of bigger quick picture questions. One is.
Just in terms of the big picture impact of COVID-19 on the regulatory tenor if you will in California.
It doesn't sound like there's any impact.
So far are you talking about the Capex program approved.
Approval of the.
Priest financing.
Capability, but is there any sense that there is whether it's on a cost of capital and are always or or whether it's on prudency of investments that theres a view that given all the economic pressures maybe there is.
Any evidence that they might want things to slow down I know a lot of municipal systems are kind of deferring some investments for now.
Evidence that there might be that that kind of thing could creep in.
And you might be asked to sort of hold some things off or is it seem like it's all systems go.
I'll start and then I'll, let Paul and Tom jump in as well I think as of right now it looks like it's all systems go I I think you're asking a very good question and that.
With co bid hotel.
Hotel occupancy rates are down there is no tourism no one's going to Disneyland in southern California, So you're going to have this multiplier effect that certainly affect the municipal systems on but for us that our rate regulated investor on water systems I think it's all systems go right now the big thing that we're watching is really that beyond the customer accounts receivable.
On the aging of those receivables and when we went through the recession and 089, the subprime crisis. It was interesting our bad debt went up I think 10 basis points. So clearly you know the governors order to suspend collections has as has popped up our receivable balances a little bit but that's real.
The limited to about 60000 customers. So far so so we're looking at that.
The other thing I would say Ryan is for us and it's been a difficult operating here, but we havent stopped our outreach programs. We havent stopped our philanthropic philanthropic programs you may have seen we doubled our firefighter grants. This year, we just did a community he see exercise, where we had 43.
Government officials from local and miniscule.
Areas that we operate who participated in a co run emergency operation centers. So we essentially set up they may not have the funding to do those exercises. So we'll set up and they'll come and participate with us. So we think all those things kind of get into kind of the ESG side of being a utility.
And so I think we got all watch and see what happens I think for us with the rate case, starting to wrap up we're positioned well going into 2021 and I'm very happy with the business development work, we have been able to continue to work on despite having co that Tom any thoughts.
And maybe lastly, I'll, let Paul go go first.
Do you have some thoughts on that.
This call is closer to that regulatory side I'll, let him go first sure I am really agree with what Marty said.
<unk> mission is concerned and they've asked questions.
Of all of their regulated utilities in terms of what are we doing to support our customers. During this time of coated.
And we've been able to provide them good answers many of which Marty just articulated.
But I have not seen any evidence of.
Changes in tenor at the California Commission or the other commissions that we do business and.
[music].
In terms of changed changes to our business model or the commission's posture on us as a futility.
So so the thing that I was going to add was a little bit more blue Sky, If you will but I see trends.
And they may just be short term trends, but we've talked a little bit about how people are.
Moving really wanting to move from high density areas to kind of medium density areas, where they can have their own spaces. This work from home and.
Yeah, just to the cobot situation that we're in a lot of the areas that particularly Cal water service and some of the I guess all four of our utilities are.
Our predominantly suburban type areas rather than.
Urban areas with a lot of apartment buildings and condos and whatnot I think we've actually seen a lot of interest in people moving to those communities and so if you look at the disparate economic impact I think that theres actually likely to be an uptick in interest and living in a lot of the communities that we serve and certainly we need to be able to provide.
Slide the infrastructure and the operations capabilities in those areas to meet those growing demands.
So I just wanted to add had that.
Okay.
Thats very very helpful. I appreciate all three of you weighing in there now my other question had to do with this this this issue of this decoupling right and as you know we've got a bit of a different perspective, there we believe that.
So while there could be a little bit more earnings volatility, we think that could be limited in that there could be a positive impact on the R&D side. It might my question to you is.
Your your closest your probably your closest peer.
In California made some comments earlier this week that seem to support the view that that although there might be some higher volatility in earnings.
The general tone was like Hey, this is pretty manageable, we'll get through this even if we don't have it it's not that big a deal I'm kind of paraphrasing, but.
But it definitely was it sort of a real.
Real draconian view. So my question is what is your response to that in terms of how big a deal is it from an earnings volatility standpoint, especially.
In terms of is there any way you can quantify that.
Because obviously evaluating the equity you the magnitude of that potential increase in earnings volatility is important so any kind of quantifiable metrics you can put around that would be would be helpful.
So let me let me emphasize a couple of things.
First of all and they have to do with regulatory so Paul I feel free to pipe in as well, but then looking at this over the course of the summer since we got the proposed decision and.
No I would say low income rulemaking.
The key thing for US if were to remove decoupling is to remember where we were before decoupling was implemented.
If you look at the rate structures that we had.
We were allowed to collect about 50% of our fixed costs.
In our service charges and about 50% of our fixed costs were recovered through quantity rates in many of our districts and it's a little bit different from the peer utility that you're talking about Ryan in many of our districts with low cost of water. So remember we're about half of our water is pumped groundwater.
And then those districts, where it's predominantly pumped groundwater theres not a lot of it.
Incremental water costs, there and so when we went to this de cock flowing coupling mechanism, we really tried to push the cost into the quantity rate to try to promote conservation and what weve really done in those areas in particular is skewed our cost recovery way more toward the quantity rates and so the the volatility concern is prime.
Early in places, we serve like Bakersfield like a Chico.
Where we really kind of push the rates.
To a quantity format, where if you if you just charged people where the costs fell they would pay $40 a month base rate and 10 cents a unit for water or something like that and that's that's not going to get anybody to conserve and that's not what the state wanted us to do.
And so we we skewed the rates there were going to have to we're going have to work in the next rate case and future rate cases to push those rates back into a normal position.
Which could affect to the conservation incentives for our customers, but the most critical factor I think is the volatility that we talk about it needs to be symmetrical.
And so that it is incumbent upon us to work in the rate case process to identify a forecast that we can get the regular advocate or at least the commission to buy into that gives us an equal chance of earning above or below.
The authorized return in any given year and in an average year allows us to earn our authorized return.
And that's the real focus of the rate case kind of those two things is modifying the rate design, particularly in those low water cost areas and also just getting the sales forecast right and if we can do those two things successfully will both limit the volatility and we'll also make that volatility symmetrical and I'm sure Paul has some other comments.
Yes. Thank you Tom I think you said that very well and I just wanted to reemphasize a couple of points.
We were successful utility before we had decoupling we were have been so successful.
During our period would be coupling and we will be successful financially after a decoupling.
One of the issues that we have been most concerned about where the disclosure the decision that the commission made and why we think the decision was wrong is that it takes away the important tool of pricing for water conservation, which is the state public policy.
Policy goal in this state.
If we're not able to charge high user hi, users significantly higher cost for water. We've lost a very important tool for a water conservation.
The other issue is we believe that.
The low use low use customers, who are often low lower income customers will be hurt by this decision because it will require us to put more of our costs into the fixed rates and to.
To bring the steps from first tier to second tier to third tier back down again, so low user low potentially low income customer will have.
A relatively higher bill compared to what they would have had under a decoupling mechanism and we really felt it was the wrong decision for state policy and the wrong decision for our customers and that's why we have filed for rehearing on this.
Mhm.
Okay, well I appreciate the very detailed comments thanks for your time today.
Thanks, Ryan and good day.
And our next question comes from the line of Jonathan Reeder with Wells Fargo. Your line is open.
Hey, good morning, gentlemen, I appreciate the.
This slide details can you discuss.
How 80 cents related to Q1, and Q2 breaks down between the two quarters. When I was trying to reconcile that I was getting closer like 85, or 86 cents. So I don't know something kind of shifted a little bit from your previous quarterly reports.
Jonathan I think there's a little bit more detail in our 10-Q that we're going to file later today.
And maybe we could go to that.
And help walk you through that.
After you read that.
But.
Part part of the.
Difference between the estimates for the first two quarters that were making and what we're concluding now is we just now have the exact rate design.
That.
The commission is going to adopt and we kind of plug we plug that into our billing system and so there may be for instance, some variation between whats interim rates versus what is.
Ram in CBVA.
Just because of very slight changes in the way that the rates are calculated and so that that maybe one of the things that's going on there.
The other thing.
That's a bit esoteric but.
And I apologize for those that want to get into the weeds here, but one of the things that we do end up with with the Ram is evaluating how much of that is collectible in the next 12 months and how much of that is collectible in future periods and there is a bit of a discounting of the WRAM balances that are not collectable within 12 months due.
To the accounting rules there.
And so that maybe having a little bit of an effect.
So so bear with us Jonathan we'll try to get that information and point out to you where that is in the queue.
Okay, Great and then regarding the earnings power Slide I guess, if my math is correct. The two regulated pieces get you to about $1.60 bps.
Assuming you earn the allowed.
Returns is that accurate and then where do you see your earned ROE.
Coming in relative to the loud.
So generally in the.
In the first year of a rate case, we're going to do.
We're going to do very well in California relative to the earned ROE on a regulated basis.
And so I I think.
I think we're getting pretty close we're getting pretty close to that in terms of California, and frankly, even the other states I think thats been a drag on us over the years, particularly as we ramped up our investment in Hawaii.
And that really we've we've started to catch up a lot on the Hawaii.
Earn greater return.
And that's a significant part of our non California assets.
And so from from a core regulated side of the business I think we're in.
So you were just three quarters of the way in but I think we're in pretty good shape from a revenue and expense compared to the rate case.
And then it's really these other factors that I talked about that would would tend to move today.
Move the net income most.
Most likely higher than that for the year.
Right right.
Big and just if we take out the impact.
Sales and.
The unrealized gain.
The other income.
The core I guess utility rate base that gets you around the dollars that.
Right.
Yes, I don't have the exact calculation in front of me, but it's something like that.
We we could perhaps over the math, but just for everybody else and not have just a conversation with Jonathan since I'm sure you're all the others are listening as well, it's just the the rate base multiplied by the weighted.
Capital structure in California.
California is 53.4% equity allowed and that return is 9.2%. So everybody can do that math essentially $1.5 billion of rate base and then the other states, it's probably closer to 50 50 debt equity.
But typically we're getting that same authorized return of about 9.2.
On the equity side and.
And so whatever that number is it is.
Okay, and then on the equity programs on your $300 million program, how much do you expect to pull down in 2020, I think you're at like $50 million through year.
Yeah, I think that.
We.
Dave you I'm, sorry, Dave do you have that number I know, it's in the Q and I, we didn't talk about it on this.
The slide deck about how much additional there was in the third quarter on the equity program.
We might have to we met a follow up on that or direct people, though to the spot in the queue were that's listed.
Yeah.
I can't remember it right now.
The total amount as you expect to do in $2020.
I think it slightly under 100 million that we would expect to do.
What we found in the program, particularly theres been some.
Volatility in the market from time to time and there have been some days, where we couldn't trade or couldn't trade very much we're pretty new to this ATM program to be honest.
And so our objective of getting $300 million over three years.
We're probably a little shy of that.
On a 12 month basis as we look at it right now.
But.
That doesn't mean that we can't overachieve in year, two and year three of the program, we're still targeting about $300 million of equity over that over that time spent.
I was just looking at the the the Q online it.
It's for the first nine months was 58.
Point Sixmillion.
Okay, and there is a little bit more to go in.
In the fourth quarter.
Yeah Okay.
Great. Thanks, I appreciate the additional help.
Okay. Thanks, Jonathan.
Thank you Andrew and I knew you have a question at this time please press.
And the number one.
I'm not showing any further questions I'll now turn the call back over to Margo Marty Kropelnicki for closing remarks. Thank you all right. Thanks. Thanks Bridget.
Obviously, there is that there is a lot of details to come out and our 10-Q that will get filed later today.
That will be around four to answer any questions anyone has and the meantime. Thank you for your continued interest in California Water Service group. We appreciate your.
Your support, especially during these Kobin times, and we hope everyone stay safe as we go into the Thanksgiving season, and we'll look forward to talking to everyone.
The end of February or early March as we wrap up 2020 and released our financial results for the full year. So thank you be safe and well talk to everyone. Later, thank you bye bye.
Ladies and gentlemen, it does conclude the program. Thank you for participating everyone have a great weekend.
[music].