Q3 2023 SJW Group Earnings Call

October 30, 2023

Our earnings growth will be driven by our commitment to managing operating expenses continued investment and maintaining and improving our water supply and infrastructure as.

As well as constructive regulatory outcomes across our operations, including the California water cost of capital mechanism system improvement charge in Texas, and general rate cases, and infrastructure investment surcharges in Connecticut, and Maine, all of which we will discuss during this call.

For now Andrew will review, our financial results and regulatory updates and our state operations Andrew.

Eric.

This morning prior to the market opening we released our third quarter 2023 operating results.

The quarter over quarter comparisons between 2023, and 2022 operating results were affected by and reflect the delay in San Jose water Company's 2022 to 2024 general rate case decision.

As a reminder, while the California public Utilities Commission approved the settlement agreement and San Jose water recorded the authorized revenue increase from the general rate case in the fourth quarter of 2020 to the.

The revenue increase was retroactive back to January one 2022 <unk>.

This delay in recognizing the revenues authorized in the general rate case effects the quarter over quarter comparisons through 2023.

In the third quarter, we reported revenue of $204 8 million and net income of $36 2 million or diluted EPS of $1 13 per share.

This compares to 2022 quarterly revenue of $176 million, reflecting a 16% increase.

And net income of $25 million, reflecting a 45% increase or diluted EPS of <unk> 82 per share, reflecting a 30% increase.

Operating results for the third quarter were affected by weather conditions across multiple operations with parcel demand recovery in California and Texas.

In California. They ended the declared a drought emergency in mandatory conservation ended our use of certain revenue protection mechanisms on April 11th 2023.

As noted by Eric earlier, San Jose Water Company was notified in early October that the CPUC has approved our request to re implement that temporary regulatory revenue protection mechanisms that WC MMA and WC EMA that were in place during the declared a drought emergency.

The use of these mechanisms is retroactive back to April 22023 the.

The benefit of the restored revenue protection mechanisms will not be reflected in operating results until the fourth quarter I will discuss in greater detail shortly.

We continue to see reduced water usage in Maine, due to wet weather and lower industrial usage, while in California, Texas demand partially recovered in the third quarter in.

In Connecticut revenues were not impacted by increases or decreases in water use it because of the water revenue adjustment mechanism.

As you can see the quarter over quarter increase in diluted earnings per share for Q3, 2023 was primarily driven by rate filings of <unk> 62 per share, which I'll break down for you shortly and 19 related to higher water usage.

Driven by end of the mandatory water conservation in California.

Partially offsetting the quarter over quarter increase was a 21 cents per share increase in water supply cost 12.

Income tax expense and <unk> and regulatory mechanisms as well as increased interest expense.

Now a breakdown of the increase in revenue compared to the third quarter of 2022.

The revenue increase was mostly driven by $22 6 million in cumulative rate filings and $8 $3 million due to higher usage the.

The total includes California's third quarter 2023 revenue increase in the 2022 portion of the general rate case that was approved in Q4 2022.

Water infrastructure and conservation adjustment increase in Connecticut that was effective in Q2, 2023, and a temporary rate increase authorized in Maine in Q3 of 2023.

The revenue increase was partially offset by a $3 2 million decrease in regulatory mechanism adjustments primarily from the end of the drought declaration in California.

Yeah.

There was a slight decrease I'm, sorry, a slight increase in water production expense when compared to the third quarter of 2022 the.

The increase was largely driven by $10 million in water supply costs, primarily related to a rate increase from our water supply wholesaler and a $1 $4 million due to the higher customer usage.

Partially offsetting the increase.

Expenses was $2 4 million decrease from surface water mix and regulatory adjustments.

The 1% increase in total other operating expenses compared to our prior year was primarily driven by depreciation and amortization and taxes other than income taxes.

The increase was partially offset by reduced expenses.

A significant portion of this reduction is due to San Jose water company's continued focus on the maturity of the advanced asset management program, which includes condition monitoring and assessments proactive planned asset replacement versus a run to failure approach and early detection technologies.

Additionally, advances in San Jose water company's leak detection technology deployed in the field as well as advanced leak detection capabilities of field crews have enabled the company to detect and repair leaks sooner avoiding significant costs associated with larger emergency main breaks in the distribution system.

As mentioned earlier in the call the benefit of the restored revenue protection from the WC MMA and WC EMA mechanisms is not reflected in our financial reporting from April 11 through September 32023.

Year to date, we reported revenue of $499 million and net income of $66 million or diluted EPS of $2 nine per share.

This compares to 2022 year to date revenue of $449 $3 million, reflecting an 11% increase in net income of $43 million, reflecting a 64% increase or.

Our diluted EPS of $1 33 per share, reflecting a 57% increase.

As you can see the year to date increase in diluted earnings per share for 2023 was primarily driven by rate filings of $1 52 per share in California in Maine, and a wicket increase in Connecticut that were approved after the third quarter of 2022.

There were also increases due to the release of income tax reserves and one time true up of our cupertino concession that occurred in 2022.

Partially offsetting the increase was higher water supply cost of <unk> 60 per share interest expense of 19 <unk>.

And nonrecurring 15 gain on the sale of non utility property in the year to date 2022.

Approximately $77 million has been raised in the first nine months through our aftermarket program $50 million is for general corporate purposes, and the additional amount was raised for acquisitions that closed in the third quarter.

At the end of the quarter, we had approximately $222 million available in approximately $128 million drawn on our bank lines of credit for short term financing of utility plant additions and operating activities.

The average borrowing rate for the line of credit advances during the first nine months was approximately $6 one 6%.

Average borrowing rate for the same period in 2022 was approximately $2 79%.

The effective consolidated tax rates for the first nine months ended September 32023, and 2022 were approximately 6% and 8% respectively.

A 2024 <unk> adjustment was triggered on September 32023, which will be effective in January.

The return on equity adjustment will be 70 basis points and the implementation will be handled through the advice letter process on October 13th 2023, San Jose water filed the letter numbers 601 to trigger that 2020 for WCS.

The company expects to file a separate advice letter on or about December one to implement new rates that reflect <unk> adjusted return on equity of 10 point <unk>, 1% less a 20 basis point reduction due to the restoration of the water conservation memorandum account.

For our projected ROE of 981%.

I will discuss the WCS and WC EMA more in a moment.

The advice letter also proposes a two basis point increase in the cost of debt to 528% and an overall rate of return of 786% effective January one 2024.

On October <unk> 2023, the CPUC authorized the re implementation of the W. CMA and WC MMA retroactive to April 202023.

As of April 11, 2023 S J W.

Water company has no longer afforded the revenue protections of the <unk> and WC MMA, which were in place to offset both revenue and expenses.

Impacts of lower water usage from the mandatory conservation measures.

With these retroactive implementations San Jose water will enjoy essentially uninterrupted benefits from these mechanisms.

Proved continuation of the <unk> also involves a retroactive free implementation of a temporary 20 basis point reduction in the ROE.

When <unk> is in effect.

The estimated amount not yet recorded an after tax earnings is $2 $7 million.

As of September 32023.

We have and will continue to offset the loss revenues from conservation to this balance which reflects the balance of the drought surcharges collected during the mandatory conservation period that ended April 11th until it is exhausted.

Doing so provides immediate recovery of lost revenues, resulting from conservation.

As noted by Eric earlier, the CPUC agreed with our position that temporary revenue protection mechanisms, where warranted because of the 15% voluntary water use reduction goal established by our water wholesaler based on continuing water shortage or water storage restrictions and precipitation.

Variability.

The Cpuc's decision on the <unk> and WC MMA is a win for our customers the company and the environment. It gives us the opportunity to maintain our meaningful water conservation programs, while encouraging customers to make conservation a way of life, helping reduce and stabilized water bills and <unk>.

Supporting sustainability as well as water supply given the reduced local storage.

Our regulatory affairs team worked with the CPUC to address the inherent challenges in predicting the supply mix at San Jose water company and fortunate approach that protects customers and shareholders from the cycle of droughts in California.

The cpuc's authorization of the full cost balancing account is retroactive to January one 2022, because of the delayed general rate case.

Our customers continue to experience the benefit of the full cost balancing account for water supply mix.

Plentiful precipitation during the rainy season that continued into the spring resulted in higher than normal availability of our own surface water supply.

The increased production from our own supply as benefits customers because it replaces the higher cost supplies from our wholesaler.

<unk> and our water rates.

The resulting reduction in overall water production costs from our increased owned supply flows back to customers.

A full cost balancing account tracks actual versus authorized water supply and purchase power costs and eliminates the supply mix volatility that has impacted past earnings.

Customers benefit when there is greater surface water availability and the company is protected when there is less availability.

We saw the benefit for the full year 2022, when San Jose Water company was able to book $2 million in revenue losses to this account.

In 2023 full cost balancing account balance through third quarter of 2023, as a result of the greater surface water availability.

Was it over collection of $9 $9 million, providing benefits to customers.

Yeah.

In Connecticut on October three 2023, we filed a general rate case application with the Connecticut public utilities regulatory authority for a 21 $4 million or 18, 1% increase in annual revenues.

Approximately two thirds of the requested rate increases related to infrastructure investment.

The application is also a proposal for expanding our low income water rate assistance program for eligible customers, Connecticut water has offered a 15% discount on water bills through the rap program since 2021 and was the first water utility in the state to offer this type of program.

Under.

Statute PURA has 270 days to issue a decision on our request, we expect any approved rate increase to be effective on or about July one 2024.

On September 25, 2023, PURA approved our request for a $1 one 9% increase in the water infrastructure and conservation adjustment effective October one.

2023.

The increase will generate.

One $3 million in annualized revenues.

On August 25th the Maine Public Utilities Commission approved our request for temporary rates and a better fruit Soco division, which will generate $1 5 million on an annualized basis.

The decision was related to our general rate case application filed with last March requesting $2 9 million increase in annualized revenues to cover the operating expenses and increased borrowing costs from constructing the new Soco River drinking water resource Center.

The facility went in service last summer.

A final fully litigated decision on that totaled $2 9 million requested increases expected in the fourth quarter of 2023.

Maine water also filed an application with the PUC to recover $1 7 million and completed infrastructure investments and the Camden Rocklin division through the water infrastructure charge or wisc.

If approved as requested it would generate 158000 annualized revenues.

A decision is expected in the fourth quarter of 2023.

On August 14th 2023, we closed on two significant acquisitions in Texas.

K T water development was acquired by the Texas Water company that brings 570, new residential connections the public Utilities Commission of Texas final order that translates to the certificate of convenience and necessity to Texas water is expected in the fourth quarter and we also expect approval at that.

Time of our request for fair market value and applied right Doctor in treatment.

K T water resources was acquired by our Texas water resources subsidiary.

The water supply company that is not regulated by the PUC.

T K.

K T water resources has approximately.

Has water resources that are expected to boost our available water supply by approximately 40% in our growing Texas service area.

Engineering and design work is already underway on the necessary infrastructure investment needed to bring the critical new water supply source to our existing customers. We anticipate that customers will begin to see the full benefit of this new water supply within the next few years as the infrastructure is built out.

Over the past year, we have seen increasing developer interest in our Texas service area as outstanding development units with the potential for new connections increased from 15000 units at the end of 2022 to 22000 units today.

That is not surprising as Texas water currently serves three of the five fastest growing counties in the United States. According to the U S Census Bureau.

With more than 27500 water connections and 900 wastewater connections in the area between Austin and San Antonio The company has quadrupled its service connection since 2007, and we intend to continue this momentum through the prudent acquisitions organic growth and securing water resources like Katie water to support.

That growth.

We continue to advance our application for a system improvement charge in Texas.

The sick would allow Texas water to add certain utility plant additions made since 2022, its rate base, thereby increasing revenue and avoiding the immediate need for a general rate case.

The sick is projected to increase Texas water's revenue by $1 6 million within one year of the PUC approval.

A decision is expected in Q1 2024.

The U S drought monitor is classified our Texas service areas being an extreme two exceptional drought.

We have systems in stage three and some in stage four drought conditions, we're targeting a voluntary 20% reduction in water use and the stage three areas and a 25% reduction in <unk>.

Target in the stage four areas.

Usage has been down year to date, but we did see a partial recovery in the third quarter.

We are updating our 2023 guidance range to $2 65 to $2 70 per share of net income.

Our guidance increase is attributable to our exceptional performance in 2023, driven by several factors, including.

The successful implementation of initiatives to address anticipated challenges such as procurement to further leverage our combined spend and using equity to offset higher interest costs.

Recovering water usage in California, and Texas, where our guidance was issued California was still under emergency drought declaration.

The partial release of an income tax reserve relating to repair tax deductions.

Our year end study to optimize expansion of the use of repair tax and the various constructive regulatory decisions that we have already discussed.

As investors consider the impact of this guidance.

<unk> on the future. It is important to note that we benefited in the current year from a change in regulation that allowed the company a onetime release of eight related to income tax reserves.

Also we look to invest in our future growth and improved operations, we expect an impact of between $4 <unk> per diluted share for 2024.

While we have not come out with 2024 guidance, yet we want to make sure that our investors are aware of these factors. So that they can take them into account as they think about their earnings expectations for the company in 2024 and beyond.

Year to date $77 million has been issued through our ATM and additional $5 $7 million is targeted for 2023, which.

<unk> includes a total of $32 5 million for acquisitions.

We maintain our five year capital investment outlook of $1 $6 billion, which includes approximately $230 million in estimated P fast remediation.

Prospects based on the Epa's proposed maximum contaminant levels.

We also reaffirm our long term growth rate of 5% to 7% anchored off of 2022 diluted earnings per share of $2 43.

We anticipate EPS will be non linear because of the rate case cycles with that I will turn the call back over to Eric. Thank.

Thank you Andrew well done.

One of the ways, we measure our growth and success as a company is being a force for good in delivering for customers communities and the environment.

As a water company, we're particularly focused on helping build a sustainable future for our communities, which is why we're working hard towards our goal of reducing greenhouse gas emissions by 50% by 2030 compared to 2019.

By the end of 2023.

We will have nearly 2300 megawatt hours of installed solar capacity across our local operations and we estimate that by the end of 2024 are installed solar generating capacity will more than double to nearly 6200 megawatt hours that is.

Enough Green energy to power nearly 600 homes in the U S for an entire year.

Further it will lower our operating expense, which will help us to minimize future customer rate increases.

We're also being intentional about purchasing energy from renewable sources and we are investing in infrastructure projects that will lower operating expenses.

For example, in Connecticut, the interconnection of our largest water system with a smaller nearby system will produce significant savings annually and eliminate a dependency on a single source of supply.

We also continue to leverage our increased purchasing scale since the <unk> acquisition through the procurement process.

During the third quarter, we estimate approximately $320000 in O&M savings by focusing on enterprise wide rfps multiyear agreements and harnessing the expertise of a cross functional team of leaders to develop and select suppliers.

To be clear our commitment to ESG runs deep and extends from the field to the board and beyond our organization to vendors.

We're proud that our successful environment, social and governance initiatives are being recognized showing we're making a meaningful difference.

Our rating from MSCI was recently boosted to AA from Triple B.

And our <unk> rates are public disclosure of ESG in the upper third of our peer group.

Our Connecticut utility has been recognized as a top workforce for the third consecutive year based on the feedback of our employees and an anonymous.

Survey.

In California, we've been recognized by the National Association of clean water agencies for watershed stewardship.

In Maine, our utility was recently named the utility of the year by the New England Waterworks Association for our innovative approaches to efficiently address challenges that benefit our customers.

We will continue to work towards achieving rankings that reflect our long term commitment to our environment customers employees and communities.

I'm also pleased to welcome Denise Krueger to the SJW Group Board of directors.

Denise has more than 30 years of experience in the water service profession and is a recognized water industry leader.

Her knowledge and experience in water supply as well as environmental and economic regulation in California will serve us well.

We also welcome Andrea Williams as President of Texas water she.

She comes to Texas water from Nextera, where she held several roles, including president of Nextera water, Texas.

Her leadership qualities her character and her extensive experience developing and executing regulatory and legislative strategies.

For a fantastic addition to the team.

As I've shared before our people are what makes the difference at SJW group.

I continue to be inspired by the contributions of our talented teams across our national footprint.

As they consistently provide an essential service with integrity reliability and peace of mind for our customers.

I am confident.

Our team's commitment to serving customers communities the environment and shareholders. We will continue to propel SJW group's ability to deliver value to our stakeholders and reinforce our strong position for a successful future.

With that I will turn the call back over to the operator.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

To withdraw your question. Please press star one again.

These standby, while we compile the Q&A roster.

The first question comes from Angie <unk> with Seaport Research Your line is open.

Thank you guys.

Very strong results.

Congratulations on I am clearly a bit surprisingly strong.

Sure.

So maybe just taking a step back so I understand the tax benefit.

And.

What should we think will be the effective tax rate next year.

We still like around say.

10% to 12%.

Look I think that look we're going to need to we're finalizing where it isn't it the problem with <unk>.

Projecting tax effective tax rates, Andy as you know is it depends on like discrete tax items, we have a repair tax study that.

In process that we don't know the final results are until this next quarter the quarter that we're in now so until that comes out I'm not really wanting to kind of comment specifically, but I think the range that youre talking about is consistent with the range that we've demonstrated in the past if theres no Heinz or we can fine tune that and make that even better we will.

Do that.

Okay, and then moving on to the W. CMA.

<unk>, so I understand it is retroactive to April but.

Is the assumption that it expires at the end of this year or does it stretch.

We're going to get basically this.

Supported in 'twenty four as well.

Yes, so our baseline.

The assumption is that it will continue into next year it will be as long as the voluntary call for conservation is in existence from valley water or water wholesaler and.

And as Erik highlighted in his comments they've got specific areas that they're trying to guard against which is as higher usage when they have lower storage.

So with that in mind, there I think the view will be that they will be in a more of a conservation mode for some time to come.

And then and then again on the same topic so.

Some of the strength in the third.

Quarter results has to do with.

Recovery in the usage.

During usage Cody mostly.

In Texas, but also in California, and so on.

Just wondering if some of this benefit will be.

I'll set or absorbed by <unk>.

The first quarter booking of the W. CMA.

So it's definitely in the number that is already provided for what we would have booked reflects the current usage. So what that tells you is we're still.

For the for the at least for the period of time ending in the third quarter, there was greater under utilization by customers for the up through the second quarter, but in the third quarter, we saw relatively less usage compared to those prior quarters, but it still was a benefit for us so that's going to be something that will.

Continuing for a period of time.

There will likely be a benefit that will continue into the fourth quarter.

We have not recovered to authorized rapid just to be clear.

Okay, and then lastly.

You mentioned, the 4% to 6%.

Cost.

In 24 associated with the growth of the business, but I'm just wondering if there is any and any catch up on the cost side from 2023, I mean, you clearly didn't know if that W. CMA is going to be reinstated. So I'm sure that you were <unk>.

Managing your O&M expenses around the guidance so again.

Yes.

Is there any.

And your level of confidence basically delayed.

No that's an excellent question.

And I think that's something that we obviously.

People will look at different ways that they can manage we try to focus on on on not impacting our operations, particularly in the maintenance of our business. We look for other ways that we can save in particular, we focus on are our methods, which we were very successful at doing we looked at the way that we're operating the business and it just took time for that.

To catch up with US and has produced the results that.

Process that the team has been working on his years in the making and we're finally seeing the results with that.

Continued focus on how they impact our maintenance and operations that is something that will continue into next year, So I won't expire.

Okay.

I'm, sorry, I hope that that was not.

Oh, okay.

Great. Thank you.

Okay. Thank you thanks for your questions.

Please standby for the next question.

The next question comes from Richard Sunderland with J P. Morgan Your line is open.

Hi, Good morning can you hear me.

We can thank you.

Great. Thanks for the time today.

Picking up on the last question and maybe I missed it would you echo there so apologies if I'm retreading ground, but.

The eight cents.

The four to six.

If either in the script.

Is that drawing a line to kind of those items versus the 20% to 25 guidance increase.

The Delta is recurring in 2024 kind of putting aside the question of usage, which I recognize complicates things.

Overly simplistic in terms of.

What you have that's structural and recurring into next year.

Right. That's an excellent question and that's what it's meant to do is to try to give a little bit of guide rails as people think about we're not through our budgeting process.

But we know that there are some things that we want to do it is not like maintenance related but are things that we can invest in our business to make it stronger in the future. So theres going to be a little bit of that investment that we will.

I take this opportunity in 2020 forward to execute on some of those items now if you think about it. The eight if you just go from a high point the high point of $2 50 to $2 70.

That <unk> comes off for next year, because it is definitely not a recurring item that was something that was due to the IRS regulation change and allowed us to take that benefit into this year.

Understood understood.

I guess switching topics to Texas.

The drought conditions.

Like real local challenges.

Can you speak to I guess, a little bit of push and pull here between the strong growths in the state relative to the drought and usage impacts and how to think about overall risk or opportunity here into 'twenty for sure.

I guess the.

Conditions stay as is or be there is an improvement in the drought.

Yeah. It's a great question look I think the good news is that this is definitely a weather driven.

Aspect and what we are seeing is we have seen some early rains impacted areas.

The kind of range that will change our water supply, but this is a little bit on the earlier side to see some of those range and could be a view towards where the El Nino will drive a higher usage.

Our precipitation in Texas and that whole belt that has been quite impacted by by the drought. So so I think that those are those are the possibilities now I'm not going to talk about 2020 or per se, but I will talk about the future. So that addition of K T water.

And a 40% increase in the water supply that that brings to the system that is something that the team is working very hard to get implemented and as we get that implemented into our system that will further diversify the the water sources that we have.

Able to support not.

Not only the growth, but also times of drought and so it's a very significant addition that will have a meaningful impact on our resiliency into the future.

Got it very helpful. You got you've got so where my follow up was going to be so maybe I'll just ask one other question on the Connecticut side.

I think in terms of the finally.

Framed it is two thirds related to capital.

Just thinking about that overall.

Is that inclusive of what Luca roll ins in terms of the two thirds of the overall increase in <unk>, how does that look.

Excluding the Wick aside just in terms of.

New ask on ratepayers here.

Yeah. So that's a good question I'm going to follow up with you on the specific that comes off of the of the wake up but if you think about the wicked just off the top of my head. There is a 7% that's filed and in place of revenue of the 10% revenue. So there is a definitely a portion of that those will get rolled in but as we looked at all.

Our overall numbers for Connecticut.

Mt <unk>.

<unk> has driven the rate increase and that's really what the story is is that as opposed to have an expense increase driven this is about capital investment, which is the most sustainable approach towards rate increases for our customers.

Yeah, and just to what I would add Richard is that none of the amount filed includes any wicket because thats a separate proceeding and it will get rolled in but it doesn't reduce the amount requested in and I would just further comment that we are.

We're actually optimistic regarding this filing in Connecticut.

We have carefully reviewed the aquarian, an oven grid decisions and I think we've very effectively applied the lessons.

<unk> some of the new expectations that pure articulated in those final orders so so.

Our delay in our case filing was effective I believe in addressing those concerns.

We expect to be treated fairly in this process and we'll keep investors posted as we proceed throughout the year.

Understood.

Good day.

Thank you. Thank you please standby for the next question.

The next question comes from Jonathan Reeder with Wells Fargo Securities. Your line is open.

Hey, Eric and Andrew having all of that.

Hey, Jonathan Thanks for calling in today appreciate it yes, thanks for having me.

So a lot of my questions have been asked but Andrew I just wanted to.

A little clarity when you were talking about the revised guidance what was before.

Some dilutive impact related to.

So the 4% to <unk> is for 2024, so do not think about that as a this year item, but as we look at our business and the opportunity that we.

We can use to invest in it and create future growth well into the future we're going to take some of that opportunity and in 2024. So thats. What it is it's really meant to kind of keep people in mind that that there is it's not just like you start adding the numbers on you need to account for the fact that we do have some plans as a management team to continue.

To make that growth be sustainable well into the future that <unk> that you do need to account for this year is just really the non repeating item related to the tax change and so that again those were all met free for people as they think about 2024 and beyond it was not to do with this year.

Okay, no that makes sense, great and then what was the benefit from the year end repair tax.

Is that something that Gary's board.

Is that something that will come in is something we don't we actually when we're giving you. The guidance. We don't have the answer to that as we're giving guidance. So that's hence the range and why we're highlighting that as one of the items that we have to pay attention to for the outcome of which which could drive results higher or lower than what we're projecting.

Okay, I've got something that.

Based on that study.

It will continue into the future.

Right. There is typically when you do those studies you have kind of a onetime catch up for stuff that you that's been in the system, but it will continue to have an impact on on those new additions that qualify under that under that study.

Uh huh.

Okay.

We'll definitely talk about that in the fourth quarter obviously.

So I mean.

Ryan It's Tom at this point to say I guess, what we should be looking at is like normalized 2023 kind of EPS power again, it sounds like its above.

The $2 42.

To some degree.

That's correct. It's definitely an expansion of why are we are today from our previous forecast.

Into 2024.

But I wanted to go.

Yes, I mean, I guess, when youre going into the year the.

The two things that maybe.

Maybe youre really I'm sure of any well you werent expecting the W. CMA I don't think to get extended I mean that wasn't in the base forecast.

I think the outcome and the cost of capital ends up being.

A little better.

Not initially.

As expected.

Two things there.

Those are those are fair along with the with the other things that I went through.

The usage recovery and yes.

To some extent and then obviously the performance of our team they did a really good job of of.

Where we expected this to be a more challenging year than than what is what has come before us the team really did a good job and there's a lot of.

A lot of stuff that's below the radar that we wouldn't talk about because it's lower materiality, but a lot of singles and doubles that added up to a good outcome.

Okay. Good.

Congrats on a good quarter and thanks for taking my question for them.

Good luck with China. Thanks, Jonathan.

Yes. Thank you I appreciate it.

Please standby for the next question.

The next question comes from Greg oral with UBS. Your line is open.

Hi, there.

Hi, Greg.

Maybe obvious clarification.

<unk>.

The $2 $7 million.

Tax.

Remaining.

The WCS MA W. CDMA that comes in in the fourth quarter.

That will come in in the fourth quarter is not reflected in the third quarter earnings because the.

Yes.

Approval did not come in until after that timeframe.

Okay.

Alright, thank you, though in that but thats.

But obviously in that guidance that we've provided.

Yes.

Got it.

Thank you Greg as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.

Standby for the next question.

The next question comes from Angie <unk> with Seaport Research partners. Your line is open.

Thank you just just a couple of things. So I know you are not providing a 24 guidance.

[laughter] that'll still.

So.

So here's here's my question so.

So on the one hand you have.

The support from the high ROE in in California.

Some.

Tax FX tax rate changes cost changes et cetera, but also you've delayed the Connecticut rate case, Michael I'm just yeah.

I know that that's probably a very small earnings driver, but im.

Yeah.

[laughter].

Directional guidance on 'twenty.

We are basically staying largely flat 10, you emphasized the non linear nature of Youll gross rate.

And then, especially with that benefit, but those benefits that we discussed with <unk> needs to be that mix.

Basically it's very hard to actually sell for a growth in earnings year over year between 23, and 'twenty four at least that would be my take.

<unk>.

Yeah look Andy I definitely think that there should be some factors that increase our 2024 based off of.

Our performance and where we expect things to go.

What I do want to caution against is getting too aggressive with those increases.

Don't want to disappoint folks once we get done with our budgeting process. So I'm trying to be as transparent as possible about the things that we see today.

We will do some additional investment and there is some one time items that you have to take back out in order to get there, but even once you do that there should be some upside versus where most of us were looking at our 2024.

Okay, and then changing topics you mentioned PFS capex. So can you give us a sense of.

<unk> you mentioned the potential settlement with the polluters I mean, I'm just trying to understand how the spending flows through your rate case.

And what's the recovery mechanisms.

So for US I think the key is we don't anticipate a significant cost offset due to the settlement there will be some right, but that is to be determined theres a lot of people that will that are participating in you've got to put the claims and in that place that process is going to take a significant period of time, which we don't have time for.

Ever there is something like this for us to address on behalf of our customers, we're going to be very aggressive at that at working towards addressing the issues and so given that we will use.

And focus on the traditional recovery mechanisms that are at our disposal, which are our various regulatory agencies have been very supportive of trying to take care of the health and safety of our customers.

Okay, Okay I understand thank you.

Thank you.

Yes.

Please stand by for our next question.

The next question comes from Jonathan Reeder with Wells Fargo Securities. Your line is open.

Hey, I'm sorry, it was not a one one follow up if you don't mind.

So I know previously you said that you werent optimistic the CPUC or at least the staff would be supportive of bringing back.

Coupling in California does.

The approval of like the W. CDMA is.

Does that change that perspective at all but we arent, taking kind of a bigger picture longer term kind of conservation effort.

Kind of those kind of tools in place.

<unk> potentially be decoupling.

It would be beneficial.

No.

I think what they are what they are highlighting it there they're focused on the specific issues that we're dealing with in our service area of having a a voluntary drought declaration and they recognize that it's mixed messages to your customers and that it creates.

Undue stress on a company like us to try to recover when you've got the major wholesaler promoting conservation and trying to get people to use less water. So.

Given that I think they're they've highlighted the need to.

Make sure that everybody is driven towards the same results and that would be my view and I know every 20, yes, I'd just add Jonathan.

Ali water has Anderson reservoir.

Under going seismic refit and because of the lower pool. It has to be maintained during the construction period.

That's a bit of a unique circumstance.

<unk> be out of service.

Our reduced service for nearly a decade.

Work under is undergoing so so I think for the foreseeable future.

S. J WC, we will benefit from this based upon those circumstances.

Okay.

And you said that supposedly on projects like a 10 year kind of project.

That's correct, Yes, Anderson reservoir okay.

Awesome. Thanks for the additional comments I appreciate it.

Absolutely. Thank you Jonathan for the clarifying question.

I show no further questions at this time I would.

I'd now like to turn the call back to Eric Thornburg for closing remarks.

Thank you operator on behalf of all my colleagues on the board we thank investors for their continuing support of and interest in SJW group and organization with over a century and a half of service to communities across the U S. And we're just getting started thank you very much.

Yeah.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

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Yes.

Ladies and gentlemen, thank you for standing by and welcome to the SJW Group third quarter 2023 financial results 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 this session you would need to press star one on your telephone.

Didn't hear an amazing message advising your hand just raised.

Your question. Please press star one again please.

Please be advised that today's conference is being recorded.

I would like now to turn the conference over to Andrew Walters, Chief Financial Officer and Treasurer. Please go ahead.

Thank you operator welcome to the third quarter 2023 financial results conference call for SJW group.

I will be presenting today with Eric Thornburg Chairman of the board President and Chief Executive Officer.

For those who would like to follow along slides accompanying our remarks are available on our website at SJW group Dotcom.

Before we begin today 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 expected future results as well as other factors that the company believes are appropriate under the circumstances. Many factors could cause the company's actual results and performance to differ materially from those.

As 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. In this presentation. We refer you to the financial results press release and our most recent forms 10-K, 10-Q, and 8-K filed with the Securities and Exchange Commission copies of which may be obtained on our website.

All forward looking statements are made as of today and <unk>.

<unk> group disclaims any duty to update or revise such statements you will have the opportunity to ask questions at the end of the presentation and as a reminder, this webcast is being recorded and an archive of the webcast will be available until January 20, <unk> 2024.

You can access the press release and the webcast at our corporate website.

I will now turn the call over to Eric Thornburg Eric.

Welcome everyone and thank you for joining US primary thornburg and it is my honor to serve as chair President and CEO of SJW group.

As we progress through the second half of 2023 I'm pleased to report that the strong momentum of the first half of the year continues.

We remained focused on advancing our strategy and in this quarter, we were able to achieve important milestones towards this goal.

These include sick.

Securing constructive regulatory outcomes across our local operations.

Such as an increase in the water infrastructure and conservation adjustment in Connecticut, and the approval of the re implementation of the water conservation Memorandum account in California.

<unk>, 12% customer growth year over year in Texas since 2007, Texas water has more than quadrupled its number of customers serving more than 28000 connections today.

Investing $196 million in water and wastewater utility infrastructure year to date through the end of the third quarter were 77% of our $255 million 2023 capital expenditure plan.

Which includes solar energy investments that lower operating costs and reduce greenhouse gas emissions.

And delivering earnings per diluted share of $1.13 in the third quarter and $2 nine year to date.

I am pleased to share that our successful execution of our growth strategy together with the implementation of initiatives to address anticipated challenges as well as partial usage recovery in California and Texas.

Have allowed us to increase our 2023 guidance range to $2 65.

So $2 70 of net income per diluted share.

Before we go on I would like to take a moment to comment on the re implementation of the <unk>.

Which was approved earlier this month.

The California public Utilities Commission recognized the ongoing water supply challenges in the San Jose area. When it authorized the re implementation of the W. CMA and WC EMEA to include the voluntary water conservation request of our water wholesaler Valley water.

Rainfall in 2023 has been plentiful by California standards.

But challenges continue in Santa Clara County.

Valley Water's largest reservoir is at less than 3% of its storage capacity.

And we will be for 10 years as the dam has strengthened against earthquakes.

Maintaining the momentum that our customers have made in water conservation during recent droughts will serve us all well in the future.

As we move towards the end of 2023 and into the new year, we will continue to execute on the key elements of our growth strategy.

We expect future earnings growth will be driven by our commitment to managing operating expenses continued investment and maintaining and improving our water supply and infrastructure.

As well as constructive regulatory outcomes across our operations, including the California water cost of capital mechanism system improvement charge in Texas in general rate cases, and infrastructure investment surcharges in Connecticut, and Maine, all of which we will discuss during this call.