Q4 2023 California Water Service Group Earnings Call

John: Good morning, everyone. This is John, the conference operator for today. We're just holding for a few minutes before the start time. Please hold on.

Good morning, everyone. This is John the conference operator for today, we're just holding for a few minutes before I start by peaceful Don Thank you.

[music].

Unknown Executive: Thank you. ?? ?? Good morning, ladies and gentlemen, and welcome to the California Water Service Group Q4 and year-end 2023 earnings call. I would now like to introduce you to David Healey, Principal Financial Officer of California Water Service Group. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the California Water Service group Q4, and your incentive fee earnings call.

I would now like to introduce you to David Hilli Principal financial Officer for California Water Service Group. Please go ahead.

David B. Healey: Thank you, John. Welcome, everyone, to the 2023 year and fourth quarter results call for California Water Service Group. With me today is Marty Kropelnicki, our chairman and CEO; Jim Lynch, Senior Vice President, Chief Financial Officer, and Treasurer; and Greg Milleman, our Vice President. Rates and Regulatory Affairs Office. Replay dial-in information for this call can be found in our quarterly results release, which was issued earlier today. The replay will be available until April 29, 2024.

Thank you John and welcome everyone to the 2023 year end fourth quarter results call for California Water Service group.

With me today is Marty proper Mickey.

Our chairman and CEO.

Jim Lynch Senior Vice President Chief Financial Officer, and Treasurer.

And Greg element, our vice President.

Rates and regulatory Affairs officer.

Replay dial in information for this call can be found in our quarterly results release, which was issued earlier today.

Replay will be available until April 29, 2024.

David B. Healey: As a reminder, before we begin, the company has a slide deck to accompany the earnings call today. The slide deck was distributed with an 8K yesterday afternoon and is also available on the company's website at www.calwatergroup.com. Before looking at the 2023 year and fourth quarter 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're 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 risk and uncertainties found in our Form 10-K, Form 10-Q, press releases, and other reports filed from time to time with the Securities and Exchange Commission. And now I'll turn it over to Martin. Good morning, everyone.

As a reminder, before we begin the company has a slide deck to accompany the earnings call today.

The slide deck was furnished with an 8-K yesterday afternoon and is also available at the company's website at Ww, Doug Cal water group.

Before looking.

The 2020 three year and fourth quarter results, we'd like to take a few moments and covered forward looking statements. During the course of the call the company may.

May make certain forward looking statements.

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.

And carefully read and understand the company's disclosures on risks and uncertainties found in our Form 10-K Form 10-Q.

Yes releases and other reports filed from time to time with the Securities and Exchange Commission.

And now I'll turn it over to Martin.

Good morning, everyone. Thanks for joining us today, we have a little bit of a bigger growth today going through the results for year end.

Martin A. Kropelnicki: Thanks for joining us today. We have a little bit of a bigger group today going through the results for year end. As many of you know, Dave Healey stepped in as our interim chief financial officer. Dave is wrapping up the year with me and will be certifying the financials as the principal financial officer. So Dave and I will be signing the 10k, essentially for the company, and hopefully, everyone's seen the press release after conducting a nationwide search. We ended up hiring someone in our own backyard, Jim Lynch. Jim has joined our company as our senior vice president, chief financial officer, and treasurer. I think many of you know Jim from his time at HKW.

As many of you know, Dave Healey stepped in as our interim Chief Financial Officer, Dave Healey is wrapping up the year with me only certified in the financials.

As the principal financial Officer, David <unk>.

You sign the 10-K essentially for the company.

Hopefully everyone has seen the press release after conducting a nationwide search.

We ended up hiring somewhat in our own backyard, Jim Lynch and Jim.

He has joined our company as our senior Vice President Chief Financial Officer Treasurer I.

I think many of you know Jim from this time I would ask me W. What many of you probably don't know as Jim was the audit partner on our account for a number of years going back to when I joined the company and so I've had the privilege of working with Jim for the last 18 years and I think Greg.

Martin A. Kropelnicki: What many of you probably don't know is Jim was the audit partner on our account for a number of years, going back to when I joined the company. And so I've had the privilege of working with Jim for the last 18 years. And I'm very glad that he's joined our company as our senior vice president and CFO. So Jim will be picking up part of the presentation today, but he doesn't get to start certifying the financials until Q1. The 10-Q gets filed in April. So that's the plan for today. And then we have Greg Millman here today to help talk about what's going on with the rate delay, which is probably the big topic of the day is the continued delay in the 2021 general rate. As you'll see, we were unable to conclude what was reasonable to book based on a PD and an APD.

I'm very glad that he has joined our company as our senior Vice President and CFO, Jim will be picking up part of the presentation today, but he doesn't get to start certified in the financials until that Q.

One.

10-Q gets filed.

In April so that's the plan for today and then we have Greg Melanie here today to help talk about what's going on with the race delay.

<unk>, which is probably the big topic of the day.

Is that continued delay in the 2021 general rate case, and as you'll see we were unable to conclude.

It was reasonable to blood based on PD, and Apd being issued and so when I talk about that throughout the program year to date. So let's go ahead and jump into the financials with Dave and then we will be going back and forth as we present in different parts of the presentation and then I'll conclude with some closing thoughts and then we'll open up to Q&A, So Dave I'm going to hand, it back to you. Thank you Barton.

Martin A. Kropelnicki: So we're gonna talk about that throughout the program here, Dave. So let's go ahead and jump into the financials with Dave, and then we will be going back and forth as we present different parts of the presentation. And then I'll conclude with some closing thoughts, and then we'll open up the Q&A. So Dave, I'm gonna hand this back to you.

David B. Healey: Thank you, Marty. Moving on to slide five. 2023 Year Financial Highlight, in 2023 and 2022, full-year net income attributable to California Water Service Group was $51.9 million and $96 million, respectively, a decrease of 44.1 million or 45.9%. 2023 Diluted Earnings Per Share was $0.91 compared to 2022 diluted earnings per share of $1.77, a decrease in diluted earnings per share of $0.86 or 48.4%. The 44 million decrease in net income was primarily due to the delayed final decision from the California Public Utility Commission or CPUC, on California Water Service Company or Cal Water's pending 2021 general rate case or GRC, to set new revenue rates and regulatory mechanisms. The 2021 GRC was originally scheduled to be completed on December 31, 2022, with new rates effective on January 1, 2023. On January 24, 2024, the assigned CPUC administrative law judge issued a proposed decision, the P.D., on the litigated 2021 GRC. And concurrently, the assigned CPC Commissioner issued an Alternate Proposed Decision, or APD, opposing and modifying certain decisions made by the Administrative Law Judge. The PD issued by the administrative law judges was more closely aligned.

Moving to slide five.

2023 year financial highlights.

In 2023 and 2022.

All year net income attributable in California water service group was $51 9 billion.

And 96 million, respectively, a decrease of $44 one mill again, <unk> 45, 9%.

2023 diluted earnings per share.

It was 91.

Compared to 2022 diluted earnings per share of $1 77, a decrease in diluted earnings per share of 86 or.

Our 48, 4% to $44 million decrease in net income was primarily due to the delayed final decision from the California Public utility Commission or the CPUC on California Water service company kept part count water pending 'twenty.

821 general rate case or Trc.

So set new revenue rates and regulatory mechanisms in the 2021 JRC was originally scheduled to be completed on December 31, 2022, with new rates effective on January one 2023.

January 24, 2020 for the assigned CPUC administrative law judges issued a proposed decision the pea on the <unk>.

Litigated 2021 JRC.

Concurrently the assigned CPUC Commissioner issued an alternate proposed decision or Apd.

Housing and modifying certain decisions made by the administrative law judges the PB issued by the administrative law judges force more closely aligned.

David B. Healey: Cal Water's Requested Revenue Requirement. Whereas the APD issued by the assigned commission was more closely aligned to the public advocate's requested revenue requirements, on February 13, 2024, Cal Water filed a request to change several elements in the PD and APD, including correction of possible technical issues. However, we were unable to determine which of the two proposed decisions will be adopted by the commission, or whether the second alternate proposed decision will

Waters requested revenue requirement.

Whereas the <unk> issued by the assigned Commissioner was more closely aligned to the public advocates requested revenue requirement.

On February 13, 2020 for Cal water filed a request to change several elements in the PV and apd, including correction of possible technical issues.

We were unable to determine which of the two proposed decisions will be adopted by the CPUC or if a second alternate proposed decision will be issued.

David B. Healey: As a result of the uncertainty regarding the decision that will ultimately be made by the CPC, we are unable to reasonably estimate the impact on 2023 operating revenue and expense once approved by the CPUC. However, the 2021 GRC Cumulative Adjustment Plus Interest, which is retroactive to January 1, 2023, will be recorded. Also, net income was positively impacted by $18.5 million in income tax benefits due primarily to a reduction in pre-tax operating income driven by the delay in the 2021 GRC, and a 12.1 million increase in net other income, mostly due to unrealized gains on certain non-qualified benefit plan investments due to favorable market conditions in 2023. Moving on to slide. Hey,

As a result of the uncertainty regarding the decision that will ultimately be made by the CPUC. We are unable to reasonably estimate the impact on 2023 operating revenue and expenses once approved by the CPUC.

The 2021, JRC cumulative adjustment plus interest, which is retroactive to January one 2023 will be recorded.

Also net income was positively impacted by $18 5 million an income tax benefit due primarily to a reduction in pre tax operating income driven by the delay 2021 Trc.

And a $12 1 million increase in net other income mostly due to unrealized gains on certain nonqualified benefit plan investments due to favorable market conditions in 2023.

Moving on to slide <unk>.

David B. Healey: 2023 full-year operating revenue does not include a revenue adjustment for the 2021 GRC due to the delay. Given that 2023 full-year operating revenue decreased 51.8 million or 6.1% to $794.6 million, compared to 2022 full-year operating revenue of $846.4 million. The revenue decrease was mostly due to a $66.9 million decrease in RAND and MCBA operating revenue as these mechanisms concluded on December 31, 1989.

Six.

Yeah.

2023 full year operating revenue does not include a revenue adjustment for the 2021 Trc due to this delay.

Given that 2023 full operating revenue decreased $51 8 million or six 1% to $794 6 million compared to.

122 full year operating revenue of $846 4 million.

The revenue decrease was mostly due to a $66 9 million decrease in Rand and M. CPA operating revenue as these mechanisms concluded on December 30 192.

David B. Healey: 2022, and a 23.1 million ft. creek in 2023 customer usage due to heavy precipitation in winter months and customers' continued drought-related conservation efforts. These decreases were partially offset by 2023 rate increases of $30.7 million, mostly from a 4% rate increase in most of our California districts effective May 5, 2023, an increase in CalWater's authorized return on equity from 9.2% to 9.57% effective July 31, 2023, and cost-offset revenue increases for Water Production, Purchase Water, and Purchase Power of tax rating. 2023 full year total operating expenses decreased $1.3 million to seven.

1022.

And at $23 1 million decrease in 2023 customer usage due to heavy precipitation in winter months and customers' continued drought related conservation efforts.

These decreases were partially offset by 2023 rate increases of $30 7 billion.

Mostly from a 4% rate increase in most of our California districts effective may five 2023, an increase in Cal water's authorized return on equity from nine 2% to 957% effective July 31 two.

1023.

<unk> cost offset revenue increases.

For water production purchased water.

<unk> power hub.

Tax rate increases.

2023 full year total operating expenses decreased $1 3 million to seven $717 5 million compared to 2022 full year total operating expenses of $718 8 million.

David B. Healey: $717.5 million compared to 2022 full-year total operating expenses of $718.8 million. The decrease was mostly due to an $18.5 million increase in income tax benefit, primarily from a decrease in pre-tax operating income due to the delay in the regulatory approval of our 2021 GRC and a $3.7 million decrease in other operating expenses, which were partially offset by increases of $13.4 million in labor costs. $3.2 million in water production costs and $6.6 million in depreciation and amortization expenses.

The decrease was mostly due to an.

In 18 five.

Increase in income tax benefit primarily from a decrease in pre tax operating income due to the delay in the regulatory approval of our 2021 JRC and at $3 7 million decrease in other operating expenses.

Which were partially offset by increases of $13 4 million and labor costs <unk> $2 million in water production costs, and $6 6 million and depreciation and amortization expense.

James P. Lynch: Moving on to slide seven, financial results for the year 2023. In 2023, net interest expense increased 5.5 million, or 12.4%, to 49.8 million compared to 2020. The increase was mostly due to higher short-term borrowing rates and higher outstanding borrowings on our short-term credit facility. Now I'll turn it over to Jim to cover the slides. Thanks, Dave.

Moving onto slide seven financial results year 2023.

In 2023, net interest expense increased $5 5 million or 12, 4% to $49 8 million compared to 2020 to be.

The increase was mostly due to higher short term borrowing rates and higher outstanding borrowings on our short term credit facilities.

And now I'll turn it over to Jim to cover slide eight.

Thanks, Dave.

James P. Lynch: So on slide eight, we list some of our notable achievements for 2023. Capping off those achievements was our success in terms of our capital investment. We made just under $384 million of capital investment during the year. The total included $326 million that was invested in our Cal Water Service Territory.

On slide eight we list some of our notable achievements for 2023.

Capping off.

Those achievements was our success in terms of our capital investment.

Made just under 300 or $384 million of capital investment during the year.

Total included 326 million that was invested in our Cal water service tariff territory.

James P. Lynch: The total also includes $17 million of developer-funded CIAC projects. In addition, Dave mentioned our tax benefit of $18.1 million. The benefit was primarily due to our pre-tax lower earnings, coupled with our repairs and maintenance deduction and amortization of the excess deferred income taxes that we benefited from in terms of the TCJA Tax Act.

The total also includes $17 million of developer funded projects.

Projects.

In addition, Dave mentioned, our tax benefit of $18 1 million. The benefit was primarily due to our pre tax lower earnings coupled with our repairs and maintenance deduction and amortization of excess deferred income taxes that we.

Benefited from in terms.

From the TT JA tax Act.

In 2017.

James P. Lynch: In 2023, we also experienced a $12.1 million increase in other non-regulated revenue and expenses, and that was related to unrealized gains on certain non-qualified benefit plan investments. Turning to slide nine, our capital investment total spend for the period from 2015 through 2023 is, in large part, due to the success in 2023, is averaged about three times our depreciation expense. For 2024, we're planning capital investments totaling $365 million, subject to finalization of the delayed 2021 general rate. Our 2024 estimate does not include capital expenditures associated with PFAS or AMI's AMR meter replacement program. Turning to slide 10, the success of our capital investment efforts is reflected in our rate base growth. CWT's rate base, which is based on estimated amounts included in our 2021 Cal Water general rate case, plus estimated rate base in our other states, grew to $2.25 billion by the end of 2023, an increase of 15.4% over 2022. Turning to slide number 11.

In 2023, we also experienced a $12 $1 million increase in other nonregulated revenue and expenses and that was related to unrealized gains on certain nonqualified benefit plan investments.

Turning to slide nine our capital investment total spend for the period from 2015 through 2023.

In large part due to the success in 2023 has averaged about three times our depreciation expense.

Our 2024, we are planning capital investments totaling 365 million subject to Finalization of the delayed 2021 general rate case.

Our 2024 estimate does not include capital expenditures associated with T force or am I <unk> meter replacement programs.

Turning to slide 10, the success of our capital investment efforts is reflected in our rate base growth.

CWT rate base, which is based on estimated amounts included in our 2021 Cal water General rate case, plus estimated rate base in our other states grew to 225 billion by the end of 2023, an increase of 15, 4% over 2022.

No.

Turning to slide number 11.

James P. Lynch: Wrapping up our 2023 annual financial results on slide 10, or slide 11, is our Earnings Per Share Bridge. The Earnings Per Share captures the significant income and expense changes between 2023 and 2022 discussed by Dave and reconciles our 2023 Earnings Per Share with our 2022 Earnings Per Share. The most significant item was the loss of our RAM and MCBA revenue with no replacement mechanisms due to the 2021 general rate case delay. With that, I will turn it back over to Dave to discuss our quarterly results. Thank you, Jim.

Wrapping up our 2023 annual financial results on slide 10.

Slide 11 is our earnings per share bridge, the earnings per share and capture significant income and expense changes between 2023, and 2022 discussed by Dave and reconciles our 2023 earnings per share with our 2022 earnings per share.

The most significant item was the loss of around an M. CPA revenue with no replacement mechanisms due to the 2021 general rate case delay.

With that I will turn it back over to Dave to discuss our quarterly results.

Thank you Jim moving to slide 12.

David B. Healey: Moving to slide 12, as discussed, fourth quarter 2023 operating revenue does not include the revenue adjustment from the 2021 GRC due to the delay in CPC. Operating revenue for the fourth quarter of 2023 increased $13.6 million to $214.5 million as compared to the same period last year. The increase was primarily from $13.6 million of rate increases, 12.3 million of revenue increases from a decrease in deferred revenue, and $3.3 million increase in revenue from customer usage, which was partially offset by an $18.1 million decrease in RAM and MCBA revenue as the mechanisms concluded on December 31, 2022. Fourth quarter 2023 operating expenses increased $4.6 million to $179.3 million as compared to the same period last year.

As discussed fourth quarter 2023 operating revenue does not include a revenue adjustment from the 2021 <unk> due to the delay in CPUC approval.

Operating revenue for the fourth quarter of 2023 increase.

$13 6 million to $214 5 million as compared to the same period last year.

The increase was primarily from $13 6 million of rate increases $12 3 million of revenue increases from a decrease in deferred revenue and $3 3 million increase in revenue from customer usage.

<unk> was partially offset by an $18 1 million decrease in Ram and safety and CPA revenue as the mechanisms concluded on December 31 2022.

Fourth quarter 2023, operating expenses increased $4 6 million to $179 3 million as compared to the same period of last year.

David B. Healey: The increase was due mostly to an increase in water production costs of $6.2 million, labor costs of $5.3 million, and depreciation amortization expense of $3.2 million, which was partially offset by an increase in income tax benefit of $11.2 million. Moving on to slide 13, financial results for quarter 2023. As discussed, net income does not include a revenue adjustment from the 2021 GRC due to the delay.

The increase was due mostly to an increase in water production costs of $6 2 million labor cost of $5 3 million and depreciation and amortization expense of 3.2 million, which was partially offset by an increase in income tax benefit of $11.

$2 million.

Moving on to Slide 13 financial results fourth quarter 2023.

As discussed net income does not include a revenue adjustment from the 2021 Trc due to the delay.

David B. Healey: For the fourth quarter of 2023, net income attributable to California Water Service was $30.1 million. And looted earnings per share was $0.52 compared to net income of $19.6 million in diluted earnings per share of $0.35 for the fourth quarter of 2022. The $10.6 million increase was primarily due to a 12.3 million revenue increase from a decrease in deferred revenue, 11.2 million increase in income tax benefit, and $2.8 million increase in net other income, which was partially offset by expense increases to $6.2 million in water production expenses. $5.3 million in employee wages, $3.4 million in depreciation amortization, and $1.2 million in financing costs. Interest expense in the fourth quarter of 2023 increased $1.2 million or 11.2% to $29.9 billion, same period in 2022, primarily due to increases in short-term borrowing rates and higher outstanding borrowings on our short-term facility. The Group invested $109.6 million in infrastructure improvements during the fourth quarter of 2023, which was a 3.7% increase from the same period last year. And now I'm going to turn it over to Jim to cover the slide part. Dave

For the fourth quarter of 2023 net income attributable to.

California water service.

<unk> was $30 1 million and diluted earnings per share was <unk> 52 compared to net income.

Of $19 6 million and diluted earnings per share.

Of 30 35.

For the fourth quarter of 2022.

$10 6 million increase was primarily due to 12.

12, 3 million revenue increase from a decrease in deferred revenue.

11, $2 million increase in income tax benefit.

And $2 8 million increase in net other income, which was partially offset by expense increases of $6 2 million in water production expenses $5 3 million in employee wages, three 4 million and depreciation and amortization and $1 two.

$2 million in financing costs.

Net interest expense in the fourth quarter of 2023 increased $1 2 million or 11, 2% to $29 9 billion compared to the same period in 2022.

Primarily due to increases in short term borrowing rates and higher outstanding borrowings under our short term facilities.

Group invested $109 $6 million in infrastructure improvements during the fourth quarter of 2023, which was a three 7% increase from the same period last year.

And now I'm going to turn it over to Jim to cover Slide 14.

Thanks, Dave So we ended the year in a strong.

James P. Lynch: So we ended the year in a strong liquidity position. Group maintained, CWP maintained $85 million of cash, of which $45.4 million was classified as restricted. In addition, we had short-term borrowing capacity of about $420 million on a combination of our group and our CalWater lines of credit. Our collection process in terms of our aged accounts receivable improved in the fourth quarter, and we ended the year by reducing our past-due accounts receivable by approximately $2.1 million as compared to the same time in the prior year. In addition, we participate, or are participating, in the California Arrearage Payment Program. In November, we applied for funds through that program to cover past-due accounts up through December 31, 2022. Our request was for $83 million, and our application was accepted by the state.

Liquidity position, our group maintained CWT maintained $85 million of cash of which $45 4 million was classified as restricted. In addition, we had short term borrowing capacity of about $420 million.

A combination of our group and our Cal water lines of credit.

Our collection process in terms of our aged accounts receivable improved in the fourth quarter and we ended the year Bye bye.

By reducing our past due accounts receivable by approximately $2 $1 million as compared to the same time in the prior year.

In addition, we participate we are participating in the California Arrearages payment program.

In November we applied for funds through that program to cover.

Past due accounts up through December 31, 2022, our request was for $83 million.

Our application was accepted by the states, we're looking forward to receiving the proceeds from the program.

James P. Lynch: We're looking forward to receiving the proceeds from the program, hopefully by the end of the fourth quarter in 2024 or end of the first quarter in 2024. We did declare a dividend. I think a lot of folks on the call saw that we declared an eight-cent dividend for 2024. That is our 316th consecutive quarterly dividend, and it increases our prior dividend by approximately 7.7 percent.

Hopefully by the end of the fourth quarter in 2024 and ended the first quarter in 2024.

We did declare a dividend I think a lot of folks on the call saw that.

We declared an <unk> <unk> dividend for 2020 for.

That is our 316th consecutive quarterly dividend and it increases our prior dividend by approximately seven 7% and we continue to remain focused on our ESG goals.

James P. Lynch: And we continue to remain focused on our ESG goals. It's a very high priority of the company. We are looking at each aspect of ESG, including climate change, affordability, our infrastructure investment, and sustainability, and made advances in each of these areas as we progressed through the fourth quarter and included our efforts earlier in the year. Turning to slide 15, our earnings bridge, which demonstrates our performance from the prior year's fourth quarter earnings per share to the current year's fourth quarter earnings per share.

High priority of the company.

We are looking at each aspect of ESG, including climate change affordability, our infrastructure investment is sustainability and made advance advances in each of these areas as we progressed through.

Fourth quarter, and including our efforts earlier in the year.

Turning to slide 15, again, our earnings bridge, which which demonstrates our performance from the prior year fourth quarter earnings per share to the current year fourth quarter earnings per share and again, Dave touched on a lot of these items with the most significant item being the decrease in Ram and M CPA revenue.

James P. Lynch: And again, Dave touched on a lot of these items, with the most significant item being the decrease in RAM and MCBA revenue and no replacement mechanisms due to the rate case delay. With that, I will turn the call over to Greg to talk a little bit about our, what's probably on everybody's minds here, the 2021 California general rate case update. Thanks, Jim.

And no replacement.

Mechanisms due to the rate case delay.

With that I will turn the call over to Greg to talk a little bit about what's probably the most everybody's minds here the 2021, California General rate case update.

Alright, Thanks, Jim.

Greg Milleman: I won't repeat what Dave summarized at the start of the call, but we're going to discuss this. You all know that those decisions were issued. What I will say is, in our opinion, the proposed decision was supported significantly by the evidence in the proceeding, and the APD was not, and the filings that we made in February reflected those thoughts exactly. Turning to slide 17, it wasn't just Cal Water's opinion that the PD was supported by the evidence and more in line with what the policies of the commission are, but also our trade association, the California Water Association, filed comments to that effect, and the seven other Class A water utilities in Southern California, Edison, also put together a letter reflecting that and submitted that to the commission as well. Turning to slide 18, we also, during last week, met with the And we urged them to vote for the Democratic Party.

I will repeat what Dave summarized at the start of the call discussing this.

I'll note that those decisions the two decisions were issued.

What I will say that it's in our in our opinion the proposed decision was.

<unk> reported significantly by the evidence in the proceeding and the ABB was not in the filings that we made in February are reflected.

Those thoughts exactly turning to slide 17, it wasn't just Cal water's opinion.

That the <unk>.

<unk> supported by the evidence in more in line with what the policies of the commission.

But also our trade Association, California Water Association filed comments to that effect.

The seven other class a water utilities in southern California Edison.

So put together a letter reflecting that and submitted that to the commission as well.

Turning to slide 18.

We also during last week, we met with the four commission offices and expressed our concerns.

In regards to the Apd and we urge them to vote for the PD.

Greg Milleman: So based on all the comments that have been filed by multiple parties, as well as speakers at public participation hearings and just the differences between the PD and the APC, there's a lot of uncertainty right now on how the commission will decide on this matter. Moving forward to slide 19, speaking on a couple of matters related to decoupling. We had some good news that we received a letter from the California Supreme Court in January that parties noticed that the court would set arguments in the next few months. So that's a good sign; we haven't seen movement on that for quite some time. We are hoping that the court will invalidate the commission's decision, and that will eliminate decoupling.

So base based on all the comments that have been filed.

By multiple parties as well as speakers that public participation hearings.

And the.

Just the differences between the PD in the APC Theres a lot of uncertainty right now on how the commission will decide on this matter.

Moving forward to slide 19.

Speaking on a couple of matters related to decoupling.

We had some good news that we received.

A letter from the California Supreme Court that inkjet we've received in January.

Notice that the court would fit arguments in the next few months.

Thats a good side, we haven't seen movement on that for quite some time, we are hoping that the court will invalidate the commission's decision.

That eliminates decoupling and that would be a very positive outcome for us, but regardless under the new 2022 law, we will be requesting decoupling again in our 2024 general rate case.

Greg Milleman: That would be a very positive outcome for us. But regardless, under the new 2022 law, we will be requesting decoupling again in our 2024 general rate case. Moving to slide 20.

Moving to slide 20.

Greg Milleman: As you know, we already have a return on equity of 10.27 for 2024. In February of 2024, we received approval to defer the cost of capital proceedings scheduled for later this year. We received approval to defer it for one year, and that's good news as well. So for 2025, we will also start with a return on equity of 10.27, and we may move it up or down based on whether the Moody's Utility Bond Index fluctuates by 100 basis points or more, in accordance with the procedures of the Water Cost of Capital Adjustment Mechanism. And with that, I'll turn it over to you, Marty.

As you know we already have a return on equity of 10.

Then two seven or 2000 22024 and.

In February 2024, we received approval to defer the cost of capital proceeding scheduled for later this year, we received approval to the FERC for one year.

Thats good news as well so for 2025, we will also start with a return on equity pinpoint two seven.

What may move it up or down based on the edge.

Moody's utility bond index fluctuates by 100 basis points or more in accordance with the procedures of the water cost of capital adjustment mechanism.

And with that I'll turn it over to Marty great. Thanks, Craig I'm going to talk a little bit about where we RFP fast regulation.

Martin A. Kropelnicki: Great, thanks, Greg. I'm gonna talk a little bit about where we are with PFAS regulations, give you an update on business development, and then give you some closing thoughts, and we'll open up for comments. On the PFAS side, there's nothing really new to report. We're still waiting for the final adoption of EPA's regulations for and their maximum contaminant levels for PFOA and PFAS, the targets in the draft are four parts per trillion. As of right now, I would say we anticipate it coming out in the second or third quarter, but that is our best guess at this time.

For an update on business development, and then give you some closing thoughts and we'll open up for comments on the <unk> side, nothing really new to report.

We're still waiting for the final adoption.

Epa's regulations for maximum contaminant levels for <unk>, which the targets in the draft. Our four parts per trillion as of right now I would say, we anticipate that coming out in the second or third quarter, but that is our best guess at this time.

Martin A. Kropelnicki: The company continues to develop its plans for a rapid implementation to deal with approximately 72 wells, seven, and two wells that have some trace elements of PFOA and PFAS. What we haven't mentioned before is that in the last rate case cycle, we had seven wells that we included for PFAS-type treatment that we were able to implement over the last few years, and those are in production. So we've actually had a fair amount of experience implementing this type of treatment for PFAS in some of our Central Valley districts. So in total, if you take the 25 wells total that we have current treatment on and add the 72, it gets you about 97 wells in total out of about 1,000 that will require it.

The company continues to develop their plans for a rapid implementation to deal with approximately 72 wells seven wells.

Wells that have some trace elements of <unk>.

What we haven't mentioned before.

And the last rate case cycle, we had.

Seven wells that we included for <unk> type treatment that we were able to implement.

Over the last few years and those are in production. So we've actually got a fair amount of experience implementing this type of treatment for <unk> and some of our central Valley districts. So.

In total if you take that 25 <unk> total that we have current.

Treatment on and add the 72. It gives you about 97 wells in total.

Out of about 1000 that will require this type of treatment so as Jim mentioned.

Martin A. Kropelnicki: So, as Jim mentioned, the numbers that we put on the street for our capital expenditures do not include anything associated with the PFAS treatment. Nor does it include any type of recovery that is anticipated with the current pending PFAS litigation. And we do think there'll be some dollars that come back to the company that will be a direct offset to those costs to help keep the PFAS treatment costs lower for customers. Moving on to slide 22, looking at our business development slide. In 2024, excuse me, 2023, we closed six deals. If you look at the last five years, we've closed a total of 21 deals.

The numbers that we put on the street for our capital expenditures do not include anything associated with the P. Fast treatment nor does it include anything any type of recovery that is anticipated with the.

Current pending peak loss litigation and we do think there'll be some dollars that come back to the company that will be a direct offset to those cost to help keep the P. Foster admin costs, making it lower for customers.

Moving on to slide 22, looking at our business development Slide in 2024, excuse me 2023, we closed six deals.

If you look at the last five years with close to that total up 21 deals. These are typically things that we announced when we signed the contract and we provide an update that in our quarter quarterly earnings deck that talks about the status of where we are filing with the commission to get into the cloud. So we closed six deals in 2026 and 21 significant.

Martin A. Kropelnicki: These are typical things that we announce when we sign the contract, and we provide an update in our quarterly earnings deck that talks about the status of where we are, filing with the commission, and getting it to close. So we closed six deals in 2026, including one significant PPP, public-private partnership, and you can see the Camino Real utility water pipeline. That's a public-private partnership with the Guadalupe Basin River Authority to extend their water transmission line into the southern Austin market, which we believe will open up water services for an additional 10,000 connections, both on the water and wastewater side. I think, as many of you heard, Eversource made announcements that they're going to be selling their water utility, which is the old Aquarian.

PPP public private partnership.

See the Camino Realogy 20 water pipeline.

Our public private partnership with the Guadalupe basically river authority to extend their water transmission line into the southern Austin market, which we believe will open up our water services for an additional 10000 connections both on the water and wastewater side.

I think as many of you heard ever source made announcements that they are going to be selling their water utility, which is the old aquarian, obviously, we're going to be very interested in that and we'll evaluate that as I assume they will go through our public public process, it's outside our service area, but it's not that often you see a large.

Martin A. Kropelnicki: Obviously, we're going to be very interested in that, and we will evaluate it as I assume they will go through a public process. It's outside our service area, but it's not that often you see a large utility, especially a water utility, come on the market for potential acquisition. Having said that, we're also very concerned about the regulation in Connecticut and what we've seen over the last couple of years has been less constructive than it has been historically. So we will take all that into consideration as the process starts and we do our own internal evaluation. So in getting the summary, I'll just be really frank about this.

Utility, especially a water utility come on the market.

For potential acquisition.

Having said that we're also very concerned about the regulation in Connecticut, and what we've seen over the last couple of years has been less constructive than what it has been historically, so we will take all that into consideration.

The process starts and we do our own internal evaluation.

So in getting this summary, I'd just I'll be really Frank about this look I'm clearly disappointed in the continued delays associated with our 2021, California General rate case I appreciate the Cpuc's efforts to get a decision out before our year end cut off I don't believe their intent was to create more confusion, but essentially issuing at.

Martin A. Kropelnicki: Look, I'm clearly disappointed in the continued delays associated with our 2021 California general rate, but I appreciate the CPUC's efforts to get a decision out before our year-end cutoff. I don't believe their intent was to create more confusion, but essentially issuing a PD and an APD at the same time has simply created more uncertainty given the differences between the two decisions. As Dave and Jim have mentioned, given the differences between the two, we were unable to conclude which of the two decisions would ultimately be adopted and therefore cannot book anything in 2023, and that is clearly reflected in our financial results for the year. While that is disappointing, I'd like to remind everyone that we do have memo account treatment for the 2021 general rate case, and when a final decision is reached, it will be retroactive back to January 1st,

PD in Apd at the same time is simply created more uncertainty given the differences between the two decisions.

As Dave and Jim had mentioned given the differences between the two we were unable to conclude which of the two decisions will ultimately be adopted and therefore cannot book anything in 2023 and that is clearly reflected in our financial results for the year.

All of that is disappointing I would like to remind everyone. We do have memo account treatment for the 2021 general rate case and when a final decision is reached it will be retroactive back to January one 2023 set a different way when we do get the final a final conclusion, the carrying cost of billing tower skin.

Martin A. Kropelnicki: So said another way, when we do get a final conclusion, the carrying cost, the billing tariffs get adjusted, and there's a surcharge that will essentially go on the customer's bill, taking those adjustments back to one. That also means it'll be recorded in 24, and we'll try to be very clear on the disclosures what that impact is, what the dollar amounts are. I think the sad thing associated with the continued delays is that it just gets more costly. It costs more money for customers with continued delays because those, you know, its memo account is accruing interest. It costs us more money going through the audit because we have to, you know, refine our public company disclosures and get our accountants comfortable with where we are on these PUC matters. And overall, it just doesn't benefit the customers.

Adjusted it and there is a surcharge that will essentially go on the customer's bill taking those adjustments back to 123 that also means it'll it'll be.

Recorded in 'twenty, four and we'll be try to be very clear on the disclosures what that impact is in 2024. So the street can understand what the dollar amounts are I think the SaaS thing associated with the continued delays as it just gets more costly it costs more money for the customers with the continued delays because those.

Hello account is accruing interest it cost us more money going through the audit because we got to refine our public company disclosures and our accountants comfortable where we are with these PUC matters and overall it just doesn't benefit to customers, but again I don't think the commission had a bad intent I think they were trying to do a good thing and hopefully.

Martin A. Kropelnicki: But again, I don't think the commission had a bad intent. I think they were trying to do a good thing. And hopefully, as we go into March, we will have this situation resolved. The next meeting at the CPUC is on March 7th. At that time, they can issue a stay. Or they can vote in the PD.

As we go into March we will have this situation resolved. The next leading at the CPUC is on March seven at that time taken issue a stay they can vote in the PD. They can vote in the apd. They can issue a new apd or make changes to either one of the two decisions that are on the table now so all eyes will be on March <unk>, we will.

Martin A. Kropelnicki: They can vote in the APD. They can issue a new APD or make changes to either one of the two decisions that are on the table now. So all eyes will be on March, and we'll see what the commission ultimately ends up doing. Obviously, we will come out with our public company disclosures once we have finalized the 2021 general. Transcribed by https://otter.ai, Well, the General Lake case has clearly dominated and created a lot of work for us. But there are a number of other things that I think are just worth highlighting for the year. You know, first, we met and exceeded all our primary and secondary water quality standards in all the states we provide water to. California, Washington, Hawaii.

See what the commission ultimately ends up doing obviously, we will come out with our public company disclosures. Once we have finalization on the 2021 general rate case.

Well the general eight cases, clearly dominated and created a lot of work for us.

There are a number of other things that I think are just worth highlighting for the year.

First we met and exceeded all our primary and secondary water quality standards.

All the states, we provide drinking water, so, California, Washington, Hawaii, and New Mexico.

Martin A. Kropelnicki: As Jim mentioned, we had new record capital investing associated with our Infrastructure Improvement Plan at $ million, that's up. We won our second J.D. Power Award for highest overall customer service and best in the West. We were recognized by the Los Angeles Business Journal for outstanding corporate responsibility. And Newsweek once again named us one of the most responsible companies and the most trustworthy companies in the U.S., ranking us number one among water utilities, number 16 among all energy and utilities, and 298 overall.

As Jim mentioned, we had new record capital investing associated with our infrastructure improvement plan at 384 million, that's up 17% year over year.

We want our second J D Power award for highest overall customer service and best in the West we were recognized by the Los Angeles business Journal for our outstanding corporate responsibility and Newsweek once again named US one of the most responsible companies and most trustworthy companies in the U S ranking us number one.

Among the water utilities number 16, among all energy and utilities and 290 <unk> overall.

Martin A. Kropelnicki: Additionally, number four, we continue to make good progress on our efforts to improve reliability, sustainability, and climate change. I call everyone's attention to the events that happened in West Maui and the Lahaina fires. If anyone doesn't think that investment in wildfire harmony doesn't work, as many of you will recall, we were the only water pumper in West Maui that stayed in service the whole time during and after those fires. And so that was a direct result of the incremental investment that the Hawaii Water Service Company made to make sure we were ready for wildfires. And so it clearly worked, and kudos to the team for doing a good job, and it was very, very helpful. And lastly, I just want to point out, and we mentioned this earlier, that we started 2024 with a 10.27 return on equity in California. Additionally, California has agreed to our extension of our cost of capital proceeding, which we will not have to file until the spring of 2025. That means we will go into 2025 with a 10.275 ROE, plus or minus any adjustment associated with the cost of capital adjustment mechanism that we will announce when we get to the end of the program.

Additionally, number four we continue to make good progress on our on our efforts to improve reliability sustainability and climate change and I would just call everyone's attention to that the events that happened in west now in the behind the fires.

If anyone doesn't think that investment and wildfire Harvey doesn't work.

As many of you will recall, we were the only water pumper and western OE that stayed in service the whole time.

During and after those fires and so that was a direct result of incremental investment that the Hawaii water service company made to make sure we were ready for wildfires and so it clearly worked and kudos to the team for doing a good job in a very very hectic set of circumstances, and lastly, I just want to point.

And we mentioned this earlier, we started 2024 with a 10 seven return on equity and California. Additionally, California has agreed to our extension of our cost of capital proceeding, which will not have to file until the spring of 2025 that means we will go into 2025 with a 10.27.

Five Roe plus or minus any adjustment associated with the cost of capital adjustment mechanism.

That we will announce when we get to the end of the performance period.

So looking forward a couple of key things that we're focused on clearly the CPUC meetings in the delayed 2021 General rate case March Zemaitis next meeting as I mentioned assets March 'twenty, one and there is a meeting on April 18th.

On May nine.

We look forward to working with the commission on getting this decision done and moving forward.

Second in March we will announce our continued progress on our ESG program, and we will be setting and publicly disclosing our scope one scope two greenhouse gas reduction targets I think as many of you know we've put together a very thoughtful ESG program, that's very Cal water centric focused on how we support our customers and how we.

Martin A. Kropelnicki: So looking forward, a couple of key things that we're focused on, clearly the CPUC meetings in the delayed 2021 General Rate case. March 7th is the next meeting, as I mentioned. After that, it's March 21st, and there's a meeting on April 18th, and also on May 9th.

If that climate change and so the team has done a very good job.

Working on scope, one and scope to greenhouse gas emissions.

Based process and we will be announcing those in March and EMEA, we will release, our third annual SaaS be aligned ESG report.

Likewise as Greg mentioned, we will be filing our 2024 general rate case in July inclusive of our new decoupling mechanism that I believe is very important for customers and the state as we deal with climate change adaptation.

Martin A. Kropelnicki: We look forward to working with the Commission on getting this decision done and moving forward. Second, in March, we'll announce our continued progress on our ESG program, and we'll be setting and publicly disclosing our Scope 1 and Scope 2 greenhouse gas reduction targets. I think, as many of you know, we put together a very thoughtful ESG program that's very Cal Water-centric, focused on how we support our customers and how we affect climate change. And so the team has done a very good job working on scope one and scope two greenhouse gas emissions scientifically-based processes, and we'll be announcing those in March. And in May, we'll release our third annual SASB Alliance.

In closing while the general rate case has created a lot of extra work for the team and a lot of confusion I think for the public is not to practice from our core mission of taking care of our customers and running our utility.

As we look forward.

Sure.

We look forward excuse me, we look forward to working with the CPUC on completing the 2021 general rate case filing the 2024 rate case, including the decoupling mechanism, while the regulatory process can ebb and flow at different times, our service standards and commitment to service do not and we remain steadfast and focused on executing our business plan and doing what's right for our.

Customers and so with that John we will open it up for questions.

Thank you at this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad, we will pause for a moment to compile the Q&A roster.

Martin A. Kropelnicki: Likewise, as Greg mentioned, we'll be following our 2024 general rate case in July, inclusive of a new decoupling mechanism that I believe is very important for customers and the state as a whole. In closing, while the general rate case has created a lot of extra work for the team and a lot of confusion, I think, for the public, it is not to practice from our core mission of taking care of our customers and running our utility. As we look forward,

Your first question comes from the line of Greg <unk> from UBS. Please go ahead.

Yes. Thank you.

Right.

So the.

The Supreme Court.

Arguments on decoupling.

Are going to be heard.

Was there something you were.

Implying further about that.

Yes.

<unk>.

Utilities that are party to the preceding received a letter earlier this year in 2024.

Saying that the court is looking too.

Expecting to set a date for argument's late.

Later this later this year.

Martin A. Kropelnicki: We look forward, excuse me, we look forward to working with the CPUC on concluding the 2021 generation. While the regulatory process can ebb and flow at different times, our service standards and commitments to service do not, and we remain steadfast and focused on executing them because that's right for our customers. So with that, John, we will open it up for questions. Thank you. At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad.

So we all we all received notice of that.

Yes.

Briefings evolving files.

It has taken that into consideration and essentially.

They've put us on notice that they will likely be scheduling the oral arguments here some time, we hope probably.

Within the next few months that will be determined ultimately by the court, but again, we're very happy that that discussions moving forward and I look forward to bringing that to a conclusion as well.

Yes for sure.

And so.

When do you really expect that.

That there could be a.

Trc.

Outcome I know it's on the agenda.

John: We will pause for a moment to compile the Q&A roster. Your first question comes from the line of Greg Orrill from UBS. Please go ahead.

For the seven but you don't.

Your guidance seems to be that you expected a decision in the first half of the year.

Gregg Gillander Orrill: Yeah, thank you. Um, right. So the Supreme Court arguments on decoupling are going to be heard. Was there something you were implying further about that?

Maybe the second part of that is.

You've got fairly different outcomes between the.

The PD and the Apd and yet.

The confidence to raise the dividend.

The way you did.

Martin A. Kropelnicki: Yes, all the utilities that are party to the proceeding received a letter earlier this year in 2024 saying that the court is looking to set a date for arguments later this year. So we all we all received notice of that. Yeah, so the briefings have all been filed, the court has taken that into consideration, and essentially, they've put us on notice that they will likely be scheduling oral arguments here sometime. We hope, you know, probably within the next few months, it'll be determined ultimately by the court. But you know, again, we're very happy that that discussion is moving forward. And I look forward to bringing that, Yep, for sure. And so it was. When do you really expect that?

How did you how did you.

Get there.

Sure well, let's go with the first part of your question.

As Greg mentioned, we spent the last 10 days meeting with the commission be ex parte communications talking about that.

The differences between the PD and the Apd.

Which when we felt was.

<unk>.

In my mind. This is an Marty is headed so I'm not saying, it's the way the world works, but.

The company spent millions of dollars put it on a general rate case, and we were forced in a situation that we had to litigate that rate case, because they advocates did not want to settle so we'd litigated that rate case and to assign judges concluded on that rate case and they issued the PD.

And obviously the commission our commissioner had a difference of opinion on what the two judges completed based on the finding of facts in our records ever provided during the litigation process.

Martin A. Kropelnicki: that there could be a GRC outcome. I know it's on the agenda for the 7th, but you don't. Your guidance seemed to be that you expected a decision in the first half of the year, and maybe the second part of that is, you know, you've got fairly different outcomes between the PD and the APD, and yet... You had the confidence to raise the dividend the way you did. How did you, how did you get there?

I believe that the Pds best because we went through a full process of getting everything in that going through a fully litigated rate case, usually in California, we have a settled rate case.

This is one we had to fully litigate other than the rate design.

So I think.

Again, as I said I don't think they intended to create confusion I'm not sure what their intense where other than to try to bring some of the costs down but for those of you that are steady and no Cal water were very affordability focused because we know you have to have a balance nature to your capital plan and try to have some can't.

Martin A. Kropelnicki: Sure. Well, let's go with the first part of your question. As Greg mentioned, we spent the last 10 days meeting with the Commission via Partake, talking about the differences between the PD and the FT and which one we felt. In my mind, this is in Marty's head, so I'm not saying it's the way the world works, but the company spent millions of dollars putting on a general rate case, and we were forced into a situation where we had to litigate that rate case because the advocates So we litigated that rate case, and two assigned judges concluded in that Wray case, and they issued the PD. And obviously, the commission, our commissioner, had a different opinion than what the two judges concluded based on the finding of facts and the records that were provided during the litigation process.

<unk> rates and not just kind of build out infrastructure, which is why we spent a lot of effort over the last 10 years.

Building out capital plans that are that are 10 2030 years out.

So I think the commission has got to decide which decision. They think is right based on the findings of facts and we.

We've done our part now we have provided comments.

I've been very happy to see that.

Socal Edison and the other water companies have kind of jumped into the fray.

Especially as it pertains to some of the errors and things that were included in Apd that could potentially change the rate making process in the state of California, primarily around the use of contingencies. When you forecast projects that go out multiple years.

As well as taking previously approved projects from prior rate cases, and then saying.

Martin A. Kropelnicki: So, you know, I believe that the PD is best because we went through a full process of vetting everything and then going through a fully litigated rate case. Usually, in California, we have a settled rate, but this one we had to fully litigate other than the right design. So I think, you know, again, as I said, I don't think they intended to create confusion. I'm not sure what their intentions were, other than to try to bring some of the cost down. But for those of you that have studied and know Cal Water, we're very affordability focused because we know you have to have a balanced nature to your capital plan and try to have some continuity of rates and not just kind of build out infrastructure, which is why we've spent a lot of effort over the last 10 years building out capital plans that are, you know, 10, 20, 30 years out.

Got it filed dossier advice letter now that's essentially.

More historic rate, making in California has been a prospective rate, making state for a long long time. So I think that the commission has to conclude on that.

The second part of your question can you repeat a great for me please.

I guess it was.

The.

The action on the dividend would seem to imply that.

Or is that really that much of a difference between.

The PD and the Apd.

Correct me, where I'm wrong there.

Sure.

From a dividend standpoint, let's just talk about the governance process that goes on behind it.

Every year in the fall the Cal water Board.

Does a lot around.

Officers succession planning comp and benefits and also capital and dividend planning as well. So we start the discussion on the dividend usually.

October and November and then we conclude as a board.

Martin A. Kropelnicki: So I think the Commission's got to decide which decision they think is right, know we we've done our part now we have provided comments I've been very happy to see that you know SoCal Edison and the other water companies have kind of jumped into the fray especially as it pertains to some of the errors and things that were included in the APD that could potentially change the rate making process in the state of California primarily around the use of contingencies when you forecast projects you know that go out multiple years as well as taking previously approved projects from prior, No, you got to file those VA advice letter now. That's essentially more historic rate making in California. It's been a prospective.

In January what we believe the fundamentals of the company are strong.

Jim pointed out the estimate of rate base growth year over year.

We believe that the fundamentals of California regulation have remained good thats why we got a 10 to 75 Roe.

So obviously there was a little bit of consternation around this delayed rate case, and why it's so delayed and I'm not in a position to make excuses for the commission I don't like it and frankly, a pancakes rates on customer rates on customer increases that's not good.

But I think we will get through this I believe the fundamentals of the company are strong and so we have <unk>.

Priest, our dividend every year going back decades.

We believe the fundamentals of the company are good and the rate base growth is good and you saw that in the capital spending which is good it was up 17% year over year that all translates into rate base and then ill.

Martin A. Kropelnicki: So I think that the commission has to conclude on that. The second part of your question, can you repeat it, Greg, for me, please? I guess it was a, you know, the action on the dividend would seem to imply that there's not really that much of a difference between the PD and the APD. Can you help correct me where I'm wrong there?

As it goes through the ratemaking process.

Helps increase revenue and cash flows and we use that cash flow to reward investors, who invest in us and we use the other part of the cash flow to reinvest in infrastructure. So we believe the fundamentals are still good.

Thanks for your answer.

Thanks have a good day.

Yes.

So it comes from the line of Jonathan Reeder from Wells Fargo. Please go ahead.

Martin A. Kropelnicki: Sure. So from a dividend standpoint, let's just talk about the governance process that goes into behind it. Every year in the fall, the Cal Water Board does a lot around officer succession planning, compensation, and benefits, and also capital and dividend planning as well. So we start the discussion on the dividend, usually in October and November, and then we conclude as a board in January.

Hey, So you kind of touched on one of my questions. There in response to Greg.

At this point.

With the filing of the written comments and other parties jumping in the mix and everything.

Right.

Have all the pushes by the parties has been made in terms of these filings and the ex parte meetings such as the cases, just like truly in the Commission's hands at this point.

Martin A. Kropelnicki: Look, we believe the fundamentals of the company are strong. You know, as Jim pointed out, the estimate of rate-based growth year over year. We believe that the fundamentals of California regulation have remained good. That's why we got a 10.275 ROE.

The ex parte communications have all been filed I think there are some more comment letters coming in.

From some of the firefighters association in Barra firefighter firefighting Chiefs fire Chiefs.

Martin A. Kropelnicki: So obviously, there's a little bit of consternation around this delayed rate case and why it's so delayed. And I'm not in the, I'm not in a position to make excuses for the commission. I don't like it, and frankly, if pancakes rates on customers increases, that's not good.

But again those are all things that we're not involved in the drafting of the letters of their comments. Those are things that are all done by third parties. So my sense is there is still some more coming in but yes. Ultimately when those are done its really kind of up to the commission and the commission did have an open meeting Greg remember the data on that February 15 February of <unk>.

Martin A. Kropelnicki: But I think we will get through this. I believe the fundamentals of the company are strong. And so we have increased our dividend every year going back decades. And we believe the fundamentals of the company are good, and the rate-based growth is good. And you saw that in capital spending, which is good. It was up 17 percent year over year.

<unk>, how many people 20 people speak.

Raising concerns about the apd versus the PD and they were also enabling the PD is best and continue on.

GAAP into climate change wildfire, RV and building resiliency and sustainability in the state of California. So I think we're close Jonathan I think the commission ultimately has to take all that data and then decide what they're going to do.

Martin A. Kropelnicki: That all translates into the rate base, and then as it goes to the rate-making process, it helps increase revenue and cash flows. And we use that cash flow to reward investors who invest in us, and we use the other part of the cash flow to reinvest in infrastructure. So we believe the fundamentals are still good. Thanks for your answer. Thanks, Greg. Have a good day. This question comes from the line of Jonathan Reeder from Wells Fargo. Please go ahead.

Okay.

Then you kind of indicated that 2024 planned capex it was $365 million, but it depends on the outcome of the DRC I'm assuming.

That number reflects an outcome more consistent with the PD in your request can you discuss how I guess.

The capital budget might change if the apd were to be adopted.

Yes, and no I mean in concept, you're absolutely right. The decision could effect because it's late could affect the capital program for 2024.

Jonathan Garrett Reeder: Hey, you kind of touched on one of my questions there in response to Greg. But at this point, you know, with the filing of the written comments and the other parties jumping in the mix and everything, like, have all the pushes by the parties been made in terms of these filings and ex parte meetings, such that the case is just like truly in the commission's hands at this point? You know, the X-party communications have all been filed. I think there are some more comment letters coming in from some of the firefighters' association and Bay Area Firefighters, firefighting chiefs, and fire chiefs. But again, those are all things that, you know, we're not involved in the drafting of the letters or their comments. Those are things that are all done by third parties.

But if you read it.

We're lucky enough to read the 600 pages of either decision.

Youll see in that Apd. They say you can still do the capital and get the advice letter.

And part of our push back is a lot of that capital was previously approved in the last rate case.

So that's why I think you saw the other utilities become very interested in what's going on here because again, it's a forecasted capital state and Theyre changing the rules. After the fact, so I don't know how theyre going to rule on that obviously, when Greg and I met with the commission that was one of our big push that points.

Martin A. Kropelnicki: So my sense is there's still some more coming in. But yeah, ultimately, when those are done, it's really up to the commission. And the commission did have an open meeting. Greg, remember the date on that? February 15th. February 15th.

Is that you are changing the rules that have been launched along set standard and the regulatory process in the state of California. So.

Just depends which way they go now having said that obviously they are saying Hey east.

Martin A. Kropelnicki: And they had how many people, 20 people speak raising concerns about the APD versus the PD, and they were all saying they believe the PD is best for adapting to climate change, wildfire hardening, and building resiliency and sustainability in the state of California. So, I think we're close, Jonathan.

You can still do your capital you can get advice letters and look it's incumbent upon the company.

On an annual basis and on a continual basis to do a risk assessment, where that capital is the most efficient and most needed. So.

And to the extent, we do put capital to work outside of a rate case, we can either file an advice letter or it gets picked up in the next rate case filings. So there is nothing in the process that prohibits the company from doing what they think they need to do to run it.

Martin A. Kropelnicki: I think the Commission ultimately has to take all that data into account and then decide what they're going to do. OK. Then you kind of indicated the 2024 plan capex, which was $365 million, but it depends on the outcome of the GRC. I'm assuming, you know, that number reflects an outcome more consistent with the PD in your request. Can you discuss how, I guess, the capital budget might change if the APD were to be adopted? You know, yes and no. I mean, in concept, you're absolutely right.

Good water utility and to continue on.

Our path to hit our goals and objectives.

Got it designated just how is that going to be recovered.

Be preapproved capital that you can get it in the ground and you have an earnings test, which is the way. The historically worked hard you got to do it would be an advice letter means you got to do the investment get the plant in service and then start depreciate it.

From the buy side or do you pick it up in the next general rate case, Greg anything that you'd add on that.

Well, yeah, I would just add that there were.

Handful of projects that they didn't think were appropriate.

Martin A. Kropelnicki: The decision could affect the capital program for 2024 because it's late. But if you read, If you're lucky enough to read the 600 pages of either decision, you'll see in the APD, they say you can still do the capital, and you have to do it via advice letter. And part of our pushback is that a lot of that capital was previously approved in the last session. So that's why I think you saw the other utilities become very interested in what's going on here, because again, it's a forecasted capital state, and they're changing the rules after the fact. So I don't know how they're going to rule on that.

But the rest of the projects that will allow more along the lines.

Build it and then seek recovery, which as you mentioned Marty goes away from the forward looking rate right.

Great, making state philosophy, but.

My point being is that they didn't say these were bad projects that recognize the need for it but just how you get the rate recovery.

Yes, so I mean.

With that in mind, it sounds like right.

Higher levels of Capex, you've been deploying.

Should kind of anticipate.

The debt.

That moves forward or if not kind of increases given pathos.

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Martin A. Kropelnicki: Obviously, when Greg and I met with the commission, that was one of our big pushback points, you know, you're changing the rules that have been a long-established standard in the regulatory process in the state of California. So it just depends which way they go. Now, having said that, obviously, they're saying, hey, you know, you can still do your capital, you can do advice letters, and look, it's incumbent upon the company, on an annual basis and on a continual basis, to do a risk assessment where that capital is most efficient and most needed. So, and to the extent we do put capital to work outside of a rate, we can either file an advice letter, or it gets So there's nothing in the process that prohibits the company from doing what they think they need to do to run a good water utility and to continue on our, on a longer list. Greg, anything you'd add to that?

And then just kind of I guess rising expenditure needs were.

If we're looking even beyond 2024.

Should we be keeping them to levels more consistent with either the kind of a 265 or the 283 or sorry, the $3 65, and the 383 from from this year.

Yes, Jonathan I would say that the cut.

He has done a really good job at building a long term capital plan.

That allows us to try to balance affordability with the needs of the infrastructure as well as kind of building out more resiliency and reliability in dealing with climate change so I don't see that slowing down.

This is probably a hiccup, we're going through right now with the commission because of the rate case is just so late.

But what we need to do needs to continue and that's why I think west Maui I wanted to point that out.

That was all work that we worked with the Hawaii Commission on and Harden those systems and I don't think it should surprise anyone that at the end of the day when the fires are out we were the only water companies pumping water on the whole west side of Maui that was that was by design that was by good planning that was by <unk>.

Greg Milleman: Well, yeah, I would just add that there were a handful of projects that they didn't think were appropriate. But the rest of the projects that we just allowed were more along the lines of build it and then seek recovery, which, as you mentioned, Marty, goes away from the forward-looking rate making state philosophy. But my point is that they didn't say these were bad practices, and they recognized the need for them, but just how you get it right.

Good employee training and that was by putting in backup generation that was by doing the wildfire annual wildfire wildfire Harvey process, we go through and inspections to major properties declared so.

There's a cost to be ready for these things, but I think ultimately.

Greg Milleman: Yeah, so I guess, with that in mind, it sounds like, right, the higher levels of CAPEX you've been deploying, we should kind of anticipate, at that, that moves forward, or, if not, kind of increases given PFAS and just kind of, I guess, rising expenditure needs where, you know, if we're looking even beyond 2024, should we be keeping them at the levels more consistent with either the 265 or Yeah, Jonathan, I would say that the company has done a really good job at building a long-term capital plan. That allows us to try to balance affordability with the needs of the infrastructure, as well as to build out more resiliency and reliability and deal with climate change. So, I don't see that slowing down.

We have performed well even take the storms earlier this year all the storms last year.

No real Cal water outages, we didn't run out of power.

And then there are other kind of marginal benefits that don't get counted when California, Hasnt had enough energy for the grid for example, and the Governor's office calls and said Hey.

Give us what you got we will able to take six megawatts off the grid by using our backup systems, we put in place so.

All of the pieces have to fit together and it's really important that the commission take a long term comprehensive view and Thats. The view of the company has taken on their capital. So I don't see capital could slow down a little bit I don't see it slowing down dramatically because we've got a lot of work to do.

Okay. That's very helpful. Good luck with the rate case, and we'll see if.

Forget anything on March 7th or if you have to wait a little longer alright.

Martin A. Kropelnicki: You know, this is probably a hiccup we're going through right now with, you know, the commission because the rate is so late. But, you know, what we need to do, you know, needs to continue. And that's why I think, you know, West Maui, I wanted to point that out.

Alright, Thanks, Jonathan Thanks for your comments.

Yes.

As we have no further questions in our queue. At this time I will now turn the call over to Martin <unk> for brief closing remarks. Please go ahead.

Thanks, John everyone. Thanks for joining us today again.

Martin A. Kropelnicki: That was all, you know, work that we worked with the Hawaii Commission on and hardened those systems. And I don't think it should surprise anyone that, at the end of the day, when the fires were out, we were the only water company pumping water on the whole west side of Maui. That was, by design.

We will keep everyone apprised of what's happening with the Commission's watch for our press release and in <unk>.

8-K sort of the appropriate public company disclosures.

In the meantime know that we are going to continue to run our utility the best way that we know how and that's really by focusing on our customer and doing the right thing. So thank you for your time today and if you have any follow up questions feel free to reach out to any one of us. Thank you and have a good day.

Martin A. Kropelnicki: That was due to good planning. That was due to good employee training. That was by putting in backup generation. That was by doing the wildfire and wildfire hardening process we go through, and inspections to make sure properties are clear.

This concludes today's conference call. Thank you for your participation and you may now disconnect have a nice day everyone.

Martin A. Kropelnicki: So, you know, there's a cost to be ready for these things, but I think, ultimately, we have performed well. Even take the storms earlier this year and all the storms last year.

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Martin A. Kropelnicki: You know, we had no real Cal water outages. We didn't run out of power. And then there are other kinds of marginal benefits that don't get counted when California hasn't had enough energy for the grid, for example.

Sure.

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Martin A. Kropelnicki: And the governor's office called and said, hey, you know, give us what you got. You know, we were able to take six megawatts off the grid by using our backup. So, you know, all the pieces have to fit together, and it's really important that the commission takes a long-term, comprehensive view. And that's the view the company has taken on their capital. So I don't see how it could slow down a little bit.

Okay.

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Martin A. Kropelnicki: I don't see it slowing down dramatically because we've got a lot of work. Okay, that's very helpful. Good luck with the rate case. And yeah, we'll see if you get anything on March 7th, or if you have to wait a little longer.

Okay.

Okay.

Yes.

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Martin A. Kropelnicki: All right. Thanks, Jonathan. Thanks for your comments. As we have no further questions in our queue at this time, I will now turn the call over to Martin Kropelnicki for brief closing remarks. Please go ahead.

Martin A. Kropelnicki: Thanks, John. Everyone, thanks for joining us today. Again, we will keep everyone apprised of what's happening with the Commission's watch for a press release and an 8K, sort of the appropriate public company disclosures. In the meantime, know that we are going to continue to run our utility the best way that we know how, and that's really by focusing on our customers and doing the right thing. So, thank you for your time today. And if you have any follow-up questions, feel free to reach out to any one of us. Thank you, and have a good day. This concludes today's conference call. Thank you for your participation, and you may now disconnect. Have a nice day, everyone.

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