Q4 2022 California Water Service Group Earnings Call
Speaker 2: Corporate Control, Controller, please go ahead. Thank you, Mindy. Welcome everyone to the 2022 year-end fourth quarter earnings results call for California Water Service Group.
Speaker 2: With me today is Martin Kroppenicki, our president and CEO . Thomas Smagel, our vice president and chief financial officer. In Greg Melaman, our vice president of rates and regulatory affairs. Repet, replay dial information for this call can be found in our year end earnings release.
Speaker 2: which was issued earlier today. The replay will be available until May 1st, 2023. As a reminder, before we begin the company, has a slide deck to a company that earnings call this quarter.
Speaker 2: The Slide Deckless Furnace for the 8K SRD afternoon is also available at the company's website at www.kelwater.com.
Speaker 2: The company may make certain forward-looking statements.
Speaker 2: Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results may differ materially from the company's current expectation. Because of this, the company strongly advises all current shareholders, as well as interested parties.
Speaker 2: To carefully read and understand the company's disclosure on risk and uncertainties found in our Form 10K, Form 10Q, press releases, and other reports filed from time to time with the Securities and Exchange Commission. I want to start by pointing out note 16 in the Form 10K the company filed yesterday.
Speaker 2: During the fourth quarter of 2022, the company identified the imbiterial error for regulatory liability and corresponding due cases to operating revenue and deferred income taxes that were not recorded in 2019.
Speaker 2: This was associated with customer refunds. The error does not impact customer buildings or cash refunded customers. The company corrected the error in the financial statements through a statement of top opening retained earning balance to the year ended, December 31, 2020.
Speaker 2: associated with customer refunds. The error does not impact customer billing's or cash refunded to customers. The company corrected the error in the financial statements through a statement of opening retained earning balance to the year ended December 31st, 2020. For more details, please see the file 10K.
Speaker 3: I'm going to pass it over to Tom Snagel. Thanks Tom Scanlon and good morning everyone. I'm going to walk through as I usually do the results of our full year and our fourth quarter. I'm going to start on page five of the slide deck, which is the table of our financial results. And starting at the bottom of that table our EPS for the year went from $1.96.
Speaker 3: in 2021 to $1.77 in 2022, a decrease of 19 cents are net incomes, attributable to a felt-well-you-water service group declined by 5.1 million or 5.1 percent. The capital investments that you want to highlight will be talking about that a little bit on the call today increase.
Speaker 3: $34.6 million to a new record of $327.8 million of CAPEX for the year. To try to describe the full year of financial results on the next stage, remember that the big impact to the year that we've had is an $11 million unrealized change, a negative unrealized change in the valuation.
Speaker 3: of our non-qualified time and plan assets. That was the big impact for the year. Obviously it's also the third year of the California General Rake cycle. And typically in that third year, we see that rate increases don't keep up with the operating expense increases. And that was certainly the case here in 2022. I wanna jump into the next slide and talk about the fourth quarter on slide seven.
Speaker 3: share as compared to $0.7 per share in 2021 and then that income for the quarter in 22 was 19.6 million and it's an increase of 16.1 million. So as I said and looking to slide eight, the primary driver there was the reversal of the young does revenue. You saw that we had an increase of 11.
Speaker 3: 0.1 and overall for the year we had an increase of about $1.7 million in build revenue. That's fairly typical for us to have anywhere from positive a million or two to negative a million or two that used to wash us out with that factor. We did again for the quarter see if the increase cooperating expenses.
Speaker 3: look at, again, the big factors on the year is the market market, the big factor on the quarter is the increase in the unveils getting that back to normal.
Speaker 3: So we have a lot of regulatory matters to report on. We have Greg Milliman here with us, and I'm going to start with Greg talking about our California cost of capital case.
Speaker 4: Thank you, Tom. On page 11, we discussed the cost of California, cost of capital. There's really not much to report since the last quarterly report. There is no news from the commission. As of today, the following commission process, the earliest that we could see, a final decision, would be April of 23.
Speaker 3: And I'll turn it back to you, Tom Snagel. Thank you, Greg. And because of the delay in issuing a decision, the company that I can't determine whether the commission is factory and changes in market conditions or other reasons for reviewing the cost capital for this long. So we really can't say where the case is in terms of the timing, as Greg mentioned, as well as the outcome. And as we've been talking about on the third bullet there on slide 11.
Speaker 3: given the success of our financing program. We know that we had lower cost of debt that was in the application. And we don't yet know whether the commission would apply retroactivity to the eventual cost of capital decision. We've seen and we've talked about a few things that lead us to conclude that that is not probable.
Speaker 3: given the facts and circumstances that we have right now. But if the commission were to go back, and go back to the beginning of 22, we would expect that the reduction in cost of debt alone would be an $11 million annual negative impact for the company.
Speaker 3: But that would be recorded in any current period when we do see the final decision from the commission if they go retroactive. Greg, turn it back to you for the rate case update. Okay. Slide 12 is the California General Rate Case Update.
Speaker 4: As of today, the decision is two months late. There is no new news on when we will see a proposed decision. However, since the decision is late, we have opened an interim rates memo account that will allow us to track the difference between the current rates and the final rates that come out of the decision.
Speaker 4: which will be effective or which is effective January 1st, 2023. Additionally, we received approval to increase rates in most of our districts by 4% that we will commence starting April 15th, 2023. Moving on to slide 13.
Speaker 4: with a focus on the coupling. It's a reminder that at start this year, we will no longer decoupled, so we will be back to pre-2008 conditions. There will be annual, because of there is no decoupling, there'll be annual variability in the sale and production, the water sales revenues, as well as the production costs.
Speaker 4: But we knew that was coming. So to mitigate this in our 2021 rate case, we addressed it primarily by stripping more recovery at fixed cost to fixed service charge of more of our revenue to fixed service charge.
Speaker 4: And then also use more realistic water mix sources, water mix from various sources to have it more.
Speaker 4: use more realistic water mix sources, water mix from various sources to have a more realistic water production costs.
Speaker 3: And I'll turn it to you now, Marty. Great. Thanks, Craig. As we talked about in the last conference, followed in on the third quarter, the governor knows some dissident in California. And if it's a 30th, a new law asking the CBC to reconsider decoupling, which was a big win for the water industry, the investment and water industry in the state of California.
Speaker 3: Shortly after that law was signed by the governor, the California Public Education Commission filed a motion to dismiss our California Supreme Court case based that it was now an all-in-the-way based on the new law signed by the governor. We disagree with that notion. I'm very happy to report that the court dismissed the piece, his motion to dismiss.
Speaker 3: We are moving forward with our case, with the California Supreme Court. Here during the first quarter of 2023, the case has been fully briefed and we anticipate having a oral argument to find the state Supreme Court no later than mid-year of this year. So that court case is moving forward. I think all indications are going in the right direction. We look forward to having our discussion with the courts here sometime over the next quarter. So Greg, you want to go through the California Tracker status for 2023 in the delayed rate case?
Speaker 3: forward with our case with the California Supreme Court. Here during the first quarter of 2023, the case has been fully briefed and we anticipate having a oral argument to find the state Supreme Court. No later than mid-year of this year. So that court case has been to be forward. I think all indications are going in the right direction. And we look forward to having our discussion with the courts here sometime over the next quarter or so. Greg, you want to go to the California Trapper status for 2023 in the delayed rate case. Certainly.
Speaker 4: Thank you. On slide 14, you will see various mechanisms or trackers that the commission allows to track loss revenues and expenses. These will all become effective January 2023. All but two of them cannot be calculated until the 2021 race is finalized and the component parts and pieces are set by the Confinal Commission decision.
Speaker 4: The first two items, however, are the incremental cost balancing account and the conservation balancing account. We settled with public advocates in this case on the component parts of those accounts and so we're able to calculate those now. The other mechanisms will only to get the final commission decision before we can actually calculate them, but the mechanisms themselves have been. The other mechanisms themselves have been.
Speaker 3: or are not in dispute. I believe it goes to you now, Marty. Thank you. I want to give everyone a update on where we are at the drought. If everyone has been following the storms during the first quarter of 2023, it's been what, the wild winter in California. I mean, said that, you know, a storm really is a drop in the bucket. It's a drop in the bucket.
Speaker 3: We had a lot of rain the first two weeks of the year as atmosphere, as the atmosphere, river hit the west coast all up and down the state, which was, which was good news from a water supply perspective, filled up a lot of reservoirs in Northern California, and then we had a very, very dry February up until this week where we got more snow and allergic-like conditions in the CRS. I think as many of you know, round water levels were at very slowly, the seasonal changes.
Speaker 3: In one storm, really doesn't kind of change things, I admit. Snowpack is very, very healthy right now, well above 100%. But the thing to really watch is we go into the spring is what happens to the snowpack during the month of April . If you remember during April last year, we lost the majority of our snowpack in the middle quickly as the weather warmed up.
Speaker 3: And this is what yes, the part that's really driven by climate change.
Speaker 3: The other thing I would say is that the economics water in California haven't changed. You still have 40 plus million people. You are the largest ag base state in the Union and you have a very strong industrial base being the fourth largest economy in the world. So people get really excited about the storms we do as well. We're happy to see the rain, but the reality is we're far from out of this thing.
Speaker 3: The thing to really look at is what's the effect, the climate change longer term on the state. And that's why monitoring that snowpack, now long that snowpack last for, will become really, really important. Conservation continues, and our customers did a good job. Some of you may have seen we put a press release out earlier this week that our customers had nine straight months of conservation savings. Overall, Q4 2022 was 8.2% lower than last year, and 70% below adopted. Again, that's the work of the conservation team, all the conservation message we've taken place throughout the state. Our drought expenditures for the Q4 were about $500,000, the reported a memorandum account, so their expense in the period, but we're allowed to track them. Our total balance net and that account.
Speaker 3: about it, it's just under $2 million that's right now. So all eyes are on April to see what happens with the snow back. Hopefully we get more rain and more snow between now and then, but really we have to see along the last. And I think that the big thing that's really changed kind of over the last year has been the heightened awareness of the issues with the Colorado River. And while that doesn't have a per se direct effect on cow water, it does affect some of our wholesalers in Southern California that we get water from.
Speaker 3: And so we will continue to monitor that and obviously our drought efforts work hand in hand with our wholesalers to make sure we have an us supply for Southern California. So there'll be more to come on the drought as we move into spring. Moving on to page 16, want to talk a little bit about capital investment as Tom said, you know, I think the silver lining to what has been a challenge here has been the capital investment. We had a revenue record of $328 million, a $12 capital invested, which is very, very healthy. Frankly, better than what we thought we would do.
Speaker 3: pay off and we add these service connections and other states. We are putting more capital in those other states and bringing those service connections up to our standards. We expect an increase in capital expenditures and non-Califity and choice during 2023 again with our subsidiary companies. We expect that level of capital investment to continue to move up. Albeit not as the size of California.
Speaker 3: in terms of total dollars as a percentage increases the capital expenditures and the subsidiaries are growing at a very, very healthy plant that I'll come back and talk about the ice to minute when we talk about BD exercises. If you go over to page 17 on the business development side, we have highlighted in yellow kind of what has changed since we last talked and I'll just go through the changes here quickly. Kieho and Hawaii, which is a wastewater management system that adds 1,500 equivalent units or basically 1,500 customers.
Speaker 3: to our wastewater based Hawaii, that adds 24% to the connection base for our Hawaii operations. Up in the Pacific Northwest in Washington, we had a scrosed water and Bethlehem Green Agres, they were approved by the WTC in January of this year. That'll add 3% to the customer base for our connections in the state of Washington.
Speaker 3: And if you go down to the very bottom of the page, Lake Section New Mexico will be announced in January of 2023. A definitive agreement, and that is being filed with the Mexico Public Service Commission, that will add 5,000 connections, or 58% to our connection base in New Mexico.
Speaker 3: So we continue to have good luck on this business development side and growing our business outside the state of California and we'll look forward to updating you on these business development endeavors as we move forward in 2023.
Speaker 3: Thank you. Couple of time panel review. Thanks. So I'll just give a quick update on our capital investment and rate-based slides on slide 18. We've shown the capital investment for 2022. We continue to achieve CAPEX that is three times our depreciation rate. That's now a total of seven years where we've been doing that case of CAPEX.
Speaker 3: And you'll see that, remember, 2020, through 2024 are intended upon the CPUC decision and direction that we get from the CPUC in California with respect to the 2021 General Reak case. There have been no changes to slide 19. Again, that's our estimated regulated rate base, particularly as it relates to California. We're awaiting a ruling as we talked about.
Speaker 3: that would determine what the regulated rate basis in 2023, as well as 24 and 25. So Marty, I'll turn this back to you. Great, I'm on page 20 for the wrap up and what's going to happen during 2023 looking forward. First and foremost, as we talked about on this call, not a lot of new news on the cost capital in the general rate case. We are waiting.
Speaker 3: as are most of the water utilities in the state of California that are regulated by the PUC. That will create some short-term regulatory uncertainty as we wait for the two key decisions. We continue to work with the Commission and we'll be everything we can to get those committee decisions out of speed, which is possible, but ultimately the ball is in their core. Likewise, as we go into the end of the first quarter, it means the financial reporting is going to be a little bit more challenging.
Speaker 3: the fence so to speak so you can see what the numbers are kind of preimposed based on I think those trackers are going to be so if we can just ask everyone to bear with us till we get through the two decisions and the little ones the decisions that I'll clear a lot of it up but it will be a little choppy making sense of all this in the interim while we are are no longer decoupled in waiting for a GRC decision that all the many approval of trackers as well as
Speaker 3: cap structure, cost capital, et cetera. Well, we'll stay focused on regulation clearly. We're going to continue making progress on business development. The business development team has been very busy. We have a very full pipeline. We'll also continue to stay focused on risk management and paying attention to our supply chain issues throughout and climate change issues that affect the company long term. We'll be publishing our third ESG report here. Over the next few weeks, we look forward to sharing that. Everyone in the progress we've made on our battles with climate change when we're doing.
Speaker 3: to ensure sustainability for our customers. Lastly, I want to deviate a little bit and some of you might be thinking, who in the heck is this Tom Scam? And guy, what in the heck happened today, Peely? Dave Heely retired as our corporate controller some of you.
Speaker 3: probably saw the 8K last year. It was a planned retirement. So we're lucky to have Tom Scanlon. Tom has an undergraduate degree from Finance from Marquette University in Wisconsin and MBA from the University of Illinois. He is a CPA and has a strong background in financial reporting.
Speaker 3: construction management. So Thomas has been our director of financial report is his 2010. So he has been part of our succession planning process here at Cal Water. Certainly very well qualified and frankly was that was a strong background in construction in counties. He was a big ad for us when we added him in 2010 since construction and getting captain of land is a big part of what we do. So Tom, welcome.
Speaker 3: I also want to note that Justin Scarb was promoted to Vice President of Community and Governmental Affairs. Justin joined KELOLAR in 2009. He was promoted to Director in 2017 and became an officer of the Copy Effect of January 1st with Tom Scanlon. Tom, excuse me, Justin has his BS in Political Science and Arizona State University, a master's in communication from KELOLAR State K. He worked.
Speaker 3: Sean has been with the American Water Works for 15 years serving in several various senior leadership roles. Sean has a Bachelor of Arts in Political and Criminal Justice from Gettysburg College and Interest Doctors from the University of Pittsburgh Law School. He's also US Marine Corps Beck. So officially welcome to Tom Justin.
Speaker 3: Sean and then lastly I want to close out by just thanking Lynn and Dave. We've been very blessed at Kelwater to have a smart, thoughtful and creative leadership team and although leadership changes are never easy because we all get used to working together and this has just been a marvelous team to have together for the last number of years without having any changes. We also understand and we encourage people to go retire and enjoy life. One of the great things about working at a swimming pool. One to both sides of both sides, friends. One to both side.
Speaker 3: is we do have excellent benefits and excellent retirement program. So as much as change is painful to see our good friends and colleagues go, it's a good thing because it gives people room to move up. And succession planning is a core competency of management at the board here at telewater that we take very, very seriously. So with David Lynn, we just want to say thank you for all you've done for us over the over the years. He's been a major part of our team. He will be dearly dearly missed and we wish you all the best in your retirement. So with that funding, we want to open it up to questions please.
Speaker 5: The floor is now open for your questions. To ask your question at this time, please press star one in your telephone keypad. At any point you'd like to withdraw from the queue, please press star one again. You'll be provided with the opportunity to ask one question and one further follow-up question. You'll be provided with the opportunity to ask one question.
Speaker 5: We'll now take a moment to render our roster. We have a question from the line of Angie.
Speaker 6: So Ross me from Seaport, please proceed. Thank you. So I wanted to start with the fact that the coupling mechanism went away, but you are still under the conservation mandate.
Speaker 6: So again, I'm just trying to understand where the exposure is, right? Because under the conservation mandate, the sales volume or changes in sales forecast is not something that should impact your earnings. Again, I'm just trying to understand where is the sensitivity here given that conservation mandate is still in place.
Speaker 3: Sure, Angie, this is Tom Smegal, and Greg, if you can fill in when I get to the end of my knowledge here, we do have a filed account, one of the accounts that Greg mentioned. It's called the DREAMA, which is the drought, lost, essentially lost revenue, and a memorandum account.
Speaker 3: And that is something for the non-decoupled companies, like an SJW or some of the other smaller companies. That's been in place with them for some years. It does allow us to track and record loss sales during as a clear drought. And so we are in a declared drought right now.
Speaker 3: Governor Newsome declared the drought a couple of years ago and we've obviously we've mentioned that we're tracking the cost associated with that So if you're not decouples you do get to attract loss revenue and Potentially recover that later. There's a couple things about that one is that it's up to you a little bit of an earnings haircut
Speaker 3: I think a 20 basis point reduction in ROE associated with that. And then the thing that is unknown at this time, because we've had to sort of winter to date, is whether or when the governor might declare that the drought is over. Now there's obviously, as Marty mentioned, major.
Speaker 7: Water supply challenges in California, particularly in Southern California at the moment, but the Colorado River supply, we're not sure if and when the governor might might declare the drought over, but if and when that happens that account would no longer track the loss of the loss revenue. If you break it, break it, do you have anything to add to that?
Speaker 6: Now, can you hit all the relative points, Tom? Okay, I understand. Secondly, so previously I looked at the fourth quarter slide from previous years. The guys had the slide where you showed us the simplified mass for your earnings. And I understand that this year it's difficult given that you were waiting for at least two major decisions. But can you actually at least give us a sense, for example, what is...
Speaker 6: What is the non-California rate base? How should we think about those other drivers, you typically have, yeah, well, I know that a lot is unknown, but at least what would help us estimate the earnings power for this year? Yeah, I think that we don't report in segments. And so from our file documents, it's a little difficult to get the non-California rate base. We've described the company as being somewhere between 90 and 92% of our revenue and our businesses in California.
Speaker 7: And so that would tend to be about true with rate base as well, but I don't have the numbers in front of me and I don't know that we described them publicly. There is, you know, some of these calculations that are embedded in that number on slide 19, which is the rate base and I want to say that that follows that pattern as well. Where about 90% of that rate base? That's being shown there as projected rate base for 23, 4 and 5 is a California rate base. But I can't get into much more detail than that other a lot of systems and unfortunately the regulations are different in all states and so in some cases we have.
Speaker 6: Project rate based in some cases we have reported rate to get the little complicated bit. But California is fairly obvious because it will be written in the decision what the rate based in California is. Okay. And then lastly, on the financing side, so you've been very active with acquisitions of assets. So how are you financing those acquisitions? So that's one. And number two is what was the actual equity ratio at California utility at the end of 2022? So the answer to the first question is that most of these acquisitions, if you look back to the acquisitions, like 17 are relatively small. We've been funding those with corporate cash to contain through retained earnings. And the ATM equity program as well as the lines of credit that we have.
Speaker 7: The biggest acquisition that is on the list currently is probably the lake section at the very bottom and we just announced that acquisition so we actually haven't paid for it yet. And so that will come out of those sources later on as far as the equity layer at California water service company. I talk to Tom across the table with me with a calculator. We don't have that information published. We'll have to calculate that and try to get that out in another way.
Speaker 7: we don't have that information right now. If I were to say that it's about 50%, would that be... I think as of the third quarter that was trending upward and as you know, one of the issues and then the capital case was whether the capital structure was appropriate and it certainly was getting close to 50% as of the third quarter. I remember calculating that I don't have that number unfortunately for your rent.
Speaker 5: Okay, thank you guys. Thanks. Thank you. Our next question comes from the line of Jonathan Reader from Wells Fargo. Please proceed.
Speaker 7: Hey, good morning, gentlemen. I was hoping you could elaborate a little bit on the drivers of the substantial 35% increase in other operating expense. I think it was about $30 million higher than $21. For their items in there, they're not like to read to read or, you know, is that a good base to assume 23 grows off of?
Speaker 2: This is Tom Scanlon. I'll answer that. The increase in other operation expense, a good portion of that relates to a requirement of deferral based on accounting guidance that we look at the future and estimate the collection of receivables in anything that's over 24 months.
Speaker 2: We have to defer the revenue and cost each quarter. We Re-forkass that out reverse it in Rebook it and because of our anticipated collections we reversed out Revenue and cost and that's the large
Speaker 2: adjustment in the other operations expense. Also, we record our conservation expense in that category, and since we're at the end of our GRC, we have a copper-servation balancing account in which there's a number of programs that were accelerated during the final year of our rate case.
and turning off service for nonpayment, but we have a number of accounts that are under review and we can't, it's gonna take some time to employ the non-to-turnoff for nonpayment. So...
Those were the primary drivers of the increase in the other operating expense. Sounds like a lot of that increase you have an associated revenue impact as well or revenue increase. That's right. That's right. That's right, Jonathan. That's right.
Okay, and then, you know, I don't know if this is for Marty, but you know, why did the board only go at a 4% dividend increase in 23? I know the, it had been increasing it more like an 8% pace the last three years and the payout ratio on, you know, at least what should be a normalized EPS hour.
I know 23 is going to be a little messy, but it's still pretty low, you know, maybe around like 50%. So why did the dividend kind of not grow as fast as it has been historically? Yeah, good question, Jonathan. Obviously, we keep our pat ratio paged within a certain band. Clearly, it's just uncertainty right now, right? We're putting the right case for pinning.
And keep pulling that capital back into the ground. And obviously as things change, we'll re-evaluate that. We've increased the dividend every year for the past 70s, some of our years. I don't see us kind of changing directions from something like that. But we just felt there was time to be a little bit conservative until we get through these two hurdles here with the...
with the California Public Utilities Commission. Okay, thanks for that. And then just lastly, that lake section, New Mexico acquisition. Is there anything that you can disclose in terms of the purchase price or associate rate-based amount there? And is that a deal that you expect to close in 2023? We think of a close in 2023. Obviously, we haven't filed it yet with the New Mexico Public Utilities Commission. When we do, we'll be able to talk more about the purchase price. But I will say this.
application with the commission, we'll be able to talk more about it, but until then I really can't say what the purchase price is. Other than I would say it's not material at all. It's a $5,000 connection system. They're not really big numbers here that are going to really kind of dent anything. Okay, great. No, appreciate those comments Marty. Thanks. Good luck with the comments. Thanks Adam. Our final question comes from the line of Davis.
or anything else significant. And if you think that's going to have any impact on the capital investment this year, now I have a brief follow up.
Sure, well, I think I got supply chain tattooed on my arm, which has been a key focus of what I've worked on with the procurement team and the engineering team throughout the last two years. First, we're not finding a lead pipe. Let me just make a separate record straight. There's no lead pipe. We have seen subsistence.
Stangial changes in leantime requirements for ductile iron, PVC, etc. And those look like they may have peaked in the third to fourth quarter. Duptial iron used to be able to order it four to six weeks out and you'd be fine. And it's up at a job site. In some cases, it's up to a year lead time now. So part of what happens behind that, and I've met with the majority of our suppliers is
They cannot ramp up production equi at their plant sites. So they try to match their supply with the demand and not have over capacity because it costs them and their margins are fairly tight. But we are seeing that the supplier's ramp up production. It's been about 12 months coming. They started working on it early on. So we're seeing that some of that production come into Q, which is going to speed things up. The other thing that has been as help tremendously is we have been a consistent buyer of that type.
from our wholesalers. And so those relationships really make a difference when there's been a kind of a scramble and everyone out there trying to buy stuff that we've gotten bumped up to the top of the list because of our relationships and our consistency of ordering goods and services from certain vendors. So I think we've peaked. I think it's starting to get better. We have seen a pretty big increase in some of the costs. We've seen increases in our year-over-year inventory balance as well. So as we found...
access supply available, the team would grab it and we would go store it. So I think it's easy to talk about our earnings call, but the reality is the procurement team and the engineering team really did a fantastic job. And if you go back and list our earnings calls through last year, we were softly saying it's a tough year for capital. It's a tough year for capital. It's a tough year for capital. And clearly it was, but in the fourth quarter, we had our record fourth quarter. Which resulted in a record year, the team was in a fantastic job. We are seeing price increases, obviously with all the inflation pressures as well. But I think we're managing through it and I hope we're through the worst of it. The indications I've seen so far is that it's starting to get a little bit better now.
Barring any other major disruptive global event, I think we'll be on the downside of the problem and hopefully things will start leveling off. Thank you. That is helpful. My follow-up question would just be about the business development project pipeline. Obviously, I'm very excited to hear about New Mexico and just wanted to ask if there's anything in particular that you are – to the extent you can share, of course – that you are looking into or weighing options as far as water versus wastewater or certain geographies that are more attractive. Any details there would be great. Thank you very much. Sure. Very good question. Obviously – well, Rebecca. So, at 50,000 feet, we've closed deals in all five states.
We're very kind of value focused on a system. We're not interested in buying a system and overpaying for it, and then not having the ability to invest more capital into that system. That is a lose-lose situation for stockholders and for our company. So we like to buy that value.
basis where we got room to invest, make capital improvements, bring somebody up to our operating standards, and then the, you know, the sewing shareholder of the entity gets their buyout, we get the asset at a fair price, not an inflator price, but a fair price, and then our stockholder gets the ability to invest capital in that system, which allows us to start generating our rate of return.
So I'm still kind of bullish on the BD side. Obviously, inflation is going to be a factor in what happens with the economy in 2023. But the BD team has been hot and it's been hot in all five states. And I don't see our momentum slowing down. And having said that these aren't really big deals either. But obviously, they're big deals to the subsidiary companies because they're growing exponentially with these deals. So I think 23 is going to be another piece of your business development bar in any global catastrophic kind of changes in the market.
Thank you for the call. I would now like to turn the call over to Martin, Cropwell, Nikki, for closing remarks. Thanks, Wendy. Well, obviously, as we move into the first quarter, all eyes around the California Public Safety Commission, resolving the cost of capital and getting a PDO, it hopefully getting a general record to soon up sometime in 2023.
The other two things we're focused on clearly is our Supreme Court case with the Calibre Supreme Court on decoupling. And then as I mentioned earlier, everybody watch the snowpack. That's going to be your key to answering questions about the drought, what happens to the snowpack during the month of April . So with that, thanks for joining us for another year in conference call. We appreciate everyone's support and we'll look forward to updating everyone at the end of the first quarter, the end of April . Thank you very much. Have a great day.
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I have you.
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