Q3 2024 SJW Group Earnings Call
Thank you.
Speaker Change: Good day and thank you for standing by. Welcome to the SJW Group Q3 2024 earnings conference call. At this time, all participants are an illicit only mode. After the speaker's presentation, they'll be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star one when again. Please be advised today's conference is being recorded. I want to like to end the conference over you, speaker day. Andrew Walters, Chief Financial Officer and Treasurer, please go ahead.
Speaker Change: Hello.
Andrew Walters: Thank you operator. Welcome to our third quarter 2020 for financial results conference call for SJW Group.
Speaker Change: I will be presenting today with Eric Thornburg chair of the board president and chief executive officer.
Speaker Change: For those who would like to follow along, slides company in our remarks are available on our website at sjwgroup.com
Speaker Change: 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.
Speaker Change: The statements are based on estimates and assumptions made by the company and 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.
Speaker Change: Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements.
Speaker Change: For a description of some of the factors that could cause actual results to be different from statements in this presentation.
Speaker Change: We refer you to the financial results press release and to our most recent forms, TNK, TNQ, and AK filed with the Securities and Exchange Commission. Copys of which may be obtained on our website.
Speaker Change: All forward-looking statements are made out of today, and a SW group disclaims any duty to update or revise such statements.
Speaker Change: You will have an opportunity to ask questions at the end of the presentation. This webcast is being recorded and an archive of the webcast will be available until January 20th, 2025. You can access the press release in the webcast at SJW Group's website.
Speaker Change: In addition, some of the information discussed today includes the non-gap financial measures of adjusted net income and adjusted the looted earnings per share. They have not been calculated in accordance with generally accepted accounting principles in the United States or GAP.
Speaker Change: These non-gap financial measures should be considered as a supplement to the financial information prepared on a gap basis rather than an alternative to respective gap.
Speaker Change: Financial Mazers, Reconciliation of these non-gap financial measures to the most directly comparable gap financial measures are presented in the table in the appendix of our presentation.
Speaker Change: I will now turn the call over to Eric.
Eric Thornburg: Welcome everyone and thank you for joining us. My name is Eric Thornburg and is my honor to serve as chair President and CEO of SJW Group.
Eric Thornburg: I'm pleased to share that in the third quarter of 2024 we continued to meet drinking water and environmental regulations deliver on our public health and environmental stewardship commitments.
Eric Thornburg: and provide high quality water and service to customers.
Eric Thornburg: We also delivered strong financial results, including a 7% increase in net income from this time last year.
Eric Thornburg: Our performance reflects our continued execution of our successful growth strategy.
Eric Thornburg: which is focused on investments in our infrastructure and water systems across our national footprint and constructive engagement and consensus building with key local stakeholders.
Eric Thornburg: For example.
Eric Thornburg: In California, we filed a settlement agreement with the California Public Utilities Commission. For San Jose Waters, 2025 through 2027, General Rakekz, that we constructed, and we would be able to negotiate it with the Public Advocate's Office.
Eric Thornburg: Resolving all the two issues together.
Eric Thornburg: We also filed our second system improvement charge in Texas and received approval for infrastructure recovery mechanism filings in both Connecticut and Maine that together covered almost 18 miles of pipe replacement in New England.
Eric Thornburg: You're today, we have invested $252 million, or approximately 76%.
Eric Thornburg: of our $332 million capital expenditure plan for 2024. In water and wastewater utility infrastructure across all four states.
Eric Thornburg: and we're steadily advancing our five-year plan of investing $1.6 billion.
Eric Thornburg: Also our California operation anticipates receiving a grant of approximately $8 million.
Eric Thornburg: through the grid resilience and innovation partnerships program or grip.
Eric Thornburg: for advancing clean energy infrastructure.
Eric Thornburg: We anticipate matching that amount for a total $16 million investment to increase operational resilience and reduce energy costs.
Eric Thornburg: Additionally, SJW Group was one of two water utilities recognized by Newsweek in its list of America's Greenest Companies in 2025.
Eric Thornburg: and our Connecticut operations received a top workplace award from the Hartford Current for the fourth consecutive year.
Eric Thornburg: Importantly, we delivered earnings per deluge share of $1.17.
Eric Thornburg: and adjusted non-gap earnings per diluted share of $1.18 in the third quarter.
Eric Thornburg: Now while I'm proud of our accomplishments, our culture is not one of complacency.
Eric Thornburg: Our industry is facing significant challenges with the need to meet new water quality standards.
Eric Thornburg: and replace aging infrastructure, while also maintaining affordability for our customers.
Eric Thornburg: We know that regulators, legislators, and other policy makers are looking to us to be leaders.
Eric Thornburg: Define creative, resourceful, and efficient solutions to balance these at times competing needs.
Eric Thornburg: and we are up for that challenge.
Eric Thornburg: We are focused on forward-thinking solutions that prioritize public health and safety.
Eric Thornburg: While optimizing operational efficiency, whether through the use of AI technology, economies of scale, or other continual improvement exercises.
Eric Thornburg: Our industry leading scientists and engineers are busy designing PFAS treatment facilities that meet the highest regulatory expectations.
Eric Thornburg: While also tackling emerging contaminants such as microplastics through groundbreaking research.
Eric Thornburg: In parallel, we're diligently evaluating our pioneering income assistance programs in California and Connecticut to see how we can do more for a greater number of customers across our national footprint.
Eric Thornburg: We also continue to be dedicated to constructed engagement and partnership with our local stakeholders.
Eric Thornburg: to ensure that we are all well positioned to achieve our shared mission of serving our communities effectively.
Eric Thornburg: That is our culture and also our competitive advantage.
Eric Thornburg: With that, I will pass it over to Andrew to review our detailed financial results and regulatory updates in our state operations.
Andrew Walters: Andrew, thank you, Eric.
Andrew Walters: This morning before the market opened we released our third quarter 2024 operating results.
Andrew Walters: In the third quarter, we reported revenue of $225.1 million. A 10% increase from the 204.8 million reported in the same quarter of 2023.
Andrew Walters: The increase was largely driven by rate increases, including higher pass through water costs.
Andrew Walters: We also experienced higher water production expense.
Andrew Walters: Netting come for the quarter was 38.7 million, which was a 7% increase over the 36.2 million reported in the third quarter of 2023.
Andrew Walters: The Luded Irons for Share was $1.17 compared to $1.13 in 2023.
Andrew Walters: Third quarter, Merchern acquisition expenses and real estate transactions that netted .3 million after tax loss have been excluded in non-gap results reflected in just net income of $39 million.
Andrew Walters: Turning to 3rd quarter EPS Bridge.
Andrew Walters: You can see the 49 cents of the revenue increase was driven primarily by rating increases in California and Connecticut and lower income tax expense because of tax economy method change that yielded 11 cents.
Andrew Walters: The revenue increase was offset by higher water production cost of 38 cents and 6 cents in higher maintenance costs that compared to the same period last year.
Andrew Walters: year over year revenue increased by 10%.
Andrew Walters: Approximately 8.5 million of the revenue increase was passed through charges for purchase water. An 8.5 million of the increase was from general rate cases in infrastructure recovery mechanisms.
Andrew Walters: Water production expense in the quarter increased 16% compared to 2023.
Andrew Walters: The increase was principally driven by rating increases from our waterhole sailor in California and higher production volume.
Andrew Walters: Total other operating expenses increased 8% year over year and was primarily driven by higher maintenance, administration and general cost and depreciation.
Andrew Walters: Year to date, we reported revenue of $550.6 billion. He 10% increased over the $499 million reported in the same period of 2023.
Andrew Walters: As we noted for the quarter, the increase was largely driven by rate increases, including higher faster water cost.
Andrew Walters: net income for the year to date was $71 million and 8% increase.
Andrew Walters: The Louis Vuitton earnings per share was $2.18 compared to $2.9.23.
Andrew Walters: The End
Andrew Walters: As mentioned earlier, real estate transaction and merger and acquisition expenses that netted a .9 million dollar after tax loss, year to date, have been excluded in non-gap results.
Andrew Walters: A just-a-net income was 72 million and adjusted the Luther Eurne's per share was $2.21.
Andrew Walters: As you can see, $1.11 of the revenue increase was driven primarily by rating increases in California and Connecticut.
Andrew Walters: Higher usage and customer growth added 20 cents.
Andrew Walters: Changes in the allowance for uncollectable customer counts contributed 19 cents, and 10 cents was from lower income tax expense because of a tax accounting method change related to the repair tax deduction.
Andrew Walters: The revenue increase was partially offset by higher water production cost of 73 cents.
Andrew Walters: An increase in administrative and general expense of 18 cents.
Andrew Walters: as well as an increase in depreciation and amortization, maintenance cost, interest expense, and the release of an income tax reserve in 2023.
Speaker Change: From my 65 million in gross equity proceeds was raised year to date through our at the market equity program or ATM. Our current ATM program is set to expire on November 17th. We intend to enter into an agreement for a new ATM program prior to that date.
Speaker Change: At the end of 3rd quarter, we had 93 million drawn on our $350 million bank lines of credit, which left 257 million available for short term financing of utility plant additions and operating activities.
Speaker Change: and the third quarter we raised a total of 125 million through long-term debt offerings and California and Connecticut that were primarily used to pay down our bank lines of credit.
Speaker Change: By the end of 2024, we planned to raise an additional 35 million a long-term debt that will be used to pay down the line of credit further.
Speaker Change: The average borrowing rate for the line of credit advances year to date through September was approximately 6.53%. The average borrowing rate in the same period of 2023 was 6.16%.
Speaker Change: The effective consolidated income tax rates for the third quarter of 2024 and 2023 were approximately 5% and 11% respectively.
Speaker Change: As Eric mentioned earlier, a settlement agreement negotiated with the public advocates office has been filed with the CPUC for San Jose Waters 2025 through 2027 General Rakecase.
Speaker Change: Only two policy issues remain to be litigated.
Speaker Change: Chemical and Waste Disposal Cost in the full cost balance in account and adjusting the service charge calculation.
Speaker Change: The settlement agreement also authorizes a $450 million capital expenditure budget that would address several key needs such as treating PFOS to meet drinking water standards, finalized by the US EPA earlier this year.
Speaker Change: Reducing greenhouse gas emissions through solar generation, energy storage systems to replace diesel generators.
Speaker Change: Fleet electrification and advanced acoustic leak detection.
Speaker Change: and advancing the CPUCs environmental and social justice action plan to improve access to high-quality water service, climate resiliency, and economic and workforce development.
Speaker Change: It also allows greater revenue recovery through the service charge and further aligns authorized to actual usage through a lower sales forecast.
Speaker Change: The settlement agreement includes a 53.1 million or 9.4% total revenue increase at the 2025 through 2027, authorized sales and customer forecast.
Speaker Change: The annual step increase range between approximately 2.6% to 3.9%.
Speaker Change: The application we filed with the CPC in January of 2024 requested a $103 million revenue increase over the three years and proposed a three year $540 million capital expenditure program.
Speaker Change: We view the settlement agreement as a testament to our ability to work with stakeholders and regulators to achieve constructive outcomes that are beneficial to our customers.
Speaker Change: and local communities while also delivering shareholder value.
Speaker Change: If approved, the settlement agreement positions as well to continue our robust and necessary investment in our water system infrastructure.
Speaker Change: The CPC decision is expected in the fourth quarter of 2024 with new rates effective January 1st 2025.
Speaker Change: The End
Speaker Change: Then as a water reach agreement with the City of Cupertino, California to manage the city's water system that became effective on October 1, 2024.
Speaker Change: The initial term of the agreement is 12 years with a provision to extend it for an additional eight years.
Speaker Change: Under the New Agreement, we will continue to operate maintain the city's water system and pay an upfront fee of $222.1 million.
Speaker Change: which will be funded with equity through our ATM and we will make annual payments of approximately $1.8 million. Subject to increases each year based on a specified construction cost index.
Speaker Change: We first entered into an agreement with Gupertino in 1997. Since then this arrangement has proven beneficial to our customers ascent as a water and customers of Gupertino.
Speaker Change: As a large neighboring water system, we bring scale and efficiency to the city's water system operation and increase scale that helps send who's a water serve its customers as well.
Speaker Change: CPC authorized revenue increase of $760,000 became effective on July 1, 2024.
Speaker Change: Revenue increase was related to a requested rate-based increase of approximately 4.8 million for advanced metering infrastructure projects.
Speaker Change: We're planning to invest approximately $27 million in this project in 2024.
Speaker Change: It is a $100 million project that is separate from the General Rate Case.
Speaker Change: Capital Budget and majority of the installation is expected through 2026.
Speaker Change: On September 18, 2024, the Connecticut Public Utilities Regulatory Authority authorized a $4.3 million increase in analyze revenue through the water infrastructure and conservation adjustment or wicka.
Speaker Change: The Wicca surcharge became effective on October 1st and stands at 3.43%.
Speaker Change: The revenue increase was for approximately.
Speaker Change: 4199 million in completed infrastructure replacement projects that are in service and providing benefit to our customers.
Speaker Change: As we mentioned in the second quarter, Connecticut Waters General Rate Case became effective on July 1, 2024. As a reminder, the General Rate Case provided an annual revenue increase of 6.5 million with an opportunity to earn an additional 1.1 million by achieving certain performance metrics.
Speaker Change: The 9.3% return on equity and it maintained our 53 to 47% equity to debt capital structure.
Speaker Change: The End
Speaker Change: This fast week, Maine Waterfiled a General Rate Case application for the Camden Rockland Division with the Maine Public Utilities Commission.
Speaker Change: Main water is requesting a revenue increase of 1.1 million or 15.9% above current authorized revenue.
Speaker Change: A decision is expected in the second quarter of 2025.
Speaker Change: I've stepped in for 30 if they're 2024.
Speaker Change: A water infrastructure charge or whisk application was filed for the Milanocket Division to increase annualized revenues by $46,000.
Speaker Change: The decision is expected in the fourth quarter of 2024.
Speaker Change: On August 1st of 2024, whisking creases were authorized in two divisions for a total annual revenue increase of $52,000.
Speaker Change: I also want to share the main water intends to file a petition with the main public utilities commission before the end of the year, requesting consolidation of the tariffs in the company's 10 rate districts.
Speaker Change: It is a move that would streamline general rate case in with applications.
Speaker Change: with a currently filed on a district by district basis.
Speaker Change: The company typically files two to four general rate case and whisk filing each year.
Speaker Change: This will improve administrative efficiency, reduce regulatory lag, and increase the burden on regulatory agencies and their staff. And ease the burden.
Speaker Change: The New York Times
Speaker Change: Texas Water Files for a second system improvement charge, or as I see this past September.
Speaker Change: An FIC is an infrastructure recovery mechanism that is similar to WCA in Connecticut and WISC in Maine.
Speaker Change: We are requesting a 4.3 million increase in annual revenues for more than 41 million invested in completed infrastructure projects.
Speaker Change: We are targeting the decision in the first half of 2025.
Speaker Change: We have filed for a sale, transfer, and merger application with the Public Utility Commission of Texas to close on the acquisition of 3 009.
Speaker Change: The closing has not yet been scheduled. We expect to fund the acquisition of 3-99 with equity through our ATM program.
Speaker Change: We have been experiencing drought in our Texas service area and had water conservation measures in place from much of 2024.
Speaker Change: As a result, we will see lower water usage in 2024 compared to 2023.
Speaker Change: As you recall, our KT Water Resources acquisition in 2023 has a projected 6,000 acre feet of untapped water supply in the heart of Kamal County.
Speaker Change: Bringing this supply online to serve customers as a priority for us.
Speaker Change: It will be a multi-phase project and our goal is to complete it by the end of 2026.
Speaker Change: KT Water Resources was initially acquired by our unregulated subsidiary in Texas Water Resources.
Speaker Change: and third quarter of this year are regulated utility purchase the assets of KT water resources from our regulated subsidiary.
Speaker Change: The regulated utility will fund the capital expenditures to bring the additional supply online.
Speaker Change: The End
Speaker Change: 2024 guidance for Gap is currently at $2.65 to $2.75 per diluted share, and we reaffirm our guidance of $2.68 to $2.78 per diluted share on a non-gap basis.
Speaker Change: As mentioned earlier, we have reached our 65 million in gross proceeds from equity issuances, which was the top of our end of our guidance excluding acquisitions.
Speaker Change: We maintain a five-year capital investment outlook of 1.6 billion, which includes approximately 230 million in estimated PFOS remediations based on finalized maximum contaminant levels.
Speaker Change: The remaining factors under line are 2024 guidance include potential for reduced usage based on conservation and other factors.
Speaker Change: As well as strategic reinvestments in our business in 2024, such as approximately 1.1 million in customer-related software-expended year-to-date.
Speaker Change: I'd like to highlight that our guidance range is consistent with our long-term growth rate and is independent of real estate sales or merger and acquisition activities.
Speaker Change: Further, re-reaffirm our State's long-term growth rate of 5 to 7 percent that is anchored off our 2022 deluded earnings per share of $2.43.
Speaker Change: which is non-linear because of rakey cycles.
Speaker Change: I want to note that our recent settlement in California does provide a flatter rate impact than in years past.
Speaker Change: with that.
Speaker Change: I will turn the call over to Eric. Thank you Andrew. Well done. One of the ways we measure our impact and success as a company is how have we been a force for good.
Speaker Change: Just a couple of weeks ago, newsweek notified us that SJW Group has been selected as one of America's greenest companies 2025.
Speaker Change: We are one of only two water utilities selected for this prestigious recognition.
Speaker Change: Only companies that meet the European Union's stringents of sustainability criteria considered the most advanced globally were eligible.
Speaker Change: This recognition reflects the passion and dedication of our people who take our responsibility as environmental stewards very seriously.
Speaker Change: Another exciting new development is that San Jose water, along with several of our California regulated private utility peers.
Speaker Change: were awarded a $50 million grant through the grid resilience and innovation partnerships or grip program for the installation of battery energy storage systems at critical high-power use pumping stations.
Speaker Change: established by the bipartisan infrastructure law. Grip is a significant federal investment focused on modernizing and strengthening the resilience of the U.S. electric grid.
Speaker Change: The grip program will integrate battery storage energy storage systems at various sites operated by San Jose Water and our peers.
Speaker Change: To meet the grip cost share requirements and secure these funds.
Speaker Change: Sen. Zaywater has committed to match its anticipated $8 million share of the grant.
Speaker Change: Bringing the total investment to an anticipated $16 million.
Speaker Change: This funding represents a substantial investment in sustainability and operational flexibility for San Jose Water.
Speaker Change: Significantly enhancing resilience while driving down energy costs.
Speaker Change: Only three California applicants were awarded grants through the Spare Competitive Program.
Speaker Change: Other green achievements that I'd like to highlight include between 2019 and 2022. We reduced our greenhouse gas emissions by over 20%. And we're on track for further reduction in 2023.
Speaker Change: We will share that result after it's been audited.
Speaker Change: and our goal is a 50% reduction by 2030 from a 2019 baseline.
Speaker Change: In California, our Advanced Leak Detection Program, which leverages AI technology, continues to be leading edge with water loss to leaks or non-revenue water below 10%. Compared to an industry benchmark of 15%.
Speaker Change: and we're fostering the expanded use of recycled water for irrigation to better preserve drinking water supplies.
Speaker Change: In Connecticut, we've been recognized as a top workplace for the fourth consecutive year by the Hartford Current.
Speaker Change: We're especially humbled that the award is based on the results of an anonymous employee survey conducted by an independent third party.
Speaker Change: The survey asks employees about company culture, career development, and the organization's purpose and values.
Speaker Change: We appreciate our employees partnership and creating a work environment that sets us up for world-class service and success.
Speaker Change: We'd like to extend a warm welcome to Pira Commissioner David Arcanti and Express our deeper appreciation to outgoing Commissioner and Vice Chairman Jack Betcoski for his nearly four decades of public service, including 27 years of Pira.
Speaker Change: We look forward to working with Commissioner Arquanti and his fellow commissioners to best serve Connecticut residents and communities.
Speaker Change: Over the last several years, we've built a strong national platform to support our growing local operations.
Speaker Change: Through the Good Times and the Inevitable Headwinds.
Speaker Change: and with a lot of effort and intention we've maintained our fundamental values and culture through this growth.
Speaker Change: and that culture continues to guide us and distinguish us as we make business decisions that build trust with stakeholders.
Speaker Change: I continue to be inspired by the contributions of our talented teams across our local operations.
Speaker Change: As they consistently provide an essential service with integrity, reliability, genuine care and transparency.
Speaker Change: I'm confident our team's commitment to serving customers, communities, and the environment will continue to excel, STW groups ability to deliver value to our stakeholders and reinforce our strong position for a successful future.
Speaker Change: and with that I'll turn the call back over to our operator.
Speaker Change: Thank you ladies and gentlemen, if you have a question or a comment at this time, please press star one and one on your telephone. If your question has been answered, you are seeing yourself from the queue, please press star one and again. We will pause for a moment while we compile our queue and a roster.
Speaker Change: Our first question comes from Richard Sunderland with JP Morgan, your line is open.
Richard Sunderland: Hi Good Morning, thanks for the time today.
Speaker Change: Hey hi Richard, thanks for calling in.
Richard Sunderland: Good morning.
Richard Sunderland: Great, thank you.
Richard Sunderland: started with the usage trends in Texas. Can you speak a little bit about the sales there relative to the 2024 guidance assumptions. You know, are they on track ahead or behind? And I guess similarly how those trends.
Richard Sunderland: The GRC settlement and other recent developments positioned you on a 20-25 basis relative to the 5-7% longer growth rate.
Speaker Change: Yes, that's an excellent question Richard. So let's start with 2024. We've definitely suffered some decreases in due to usage and conservation.
Speaker Change: in Texas this year. We are coming into the fourth quarter so that that impact becomes less in terms of the total dollar amount but it still remains in place.
Speaker Change: It is helpful to the fact that it's going to stage three from stage four, but there's always some variation within the Texas area because there's different areas that have different drought levels, but that's still a positive development.
Speaker Change: So as we look at the fourth quarter this year, that will be something we will continue to monitor. We are not adjusting our guidance range to that. And so I would expect us to be consistent with where.
Speaker Change: where we've talked about so far. Now, for 2025, however, we would expect that drought conditions to persist.
Speaker Change: We will have the benefit of the settled break case knocked on wood that will happen according to
Speaker Change: when we expected to and we will also have the full year of the Connecticut rate case. So we are fully on track for meeting our long-term growth. I would say the one highlight that I put in into this.
Speaker Change: Comments today was to talk about the fact that the California Raiden crisis.
Speaker Change: This year, or this coming year, starts in 2025 at 3.91% assuming that gets approved. That compares to a 13.35% that happens the last time that we had to improve rate case in 2022.
Speaker Change: So the benefit of that is that flattened out our overall kind of earnings and revenue growth over a three-year cycle.
Speaker Change: So that's something I just want to highlight. It's good for customers and it's good. It's better for us to as we look at our earnings growth over a period of time.
Speaker Change: Got it, great, that motor all the color there. Yes, very helpful.
Speaker Change: Do you have the main process that you highlight in the slides there on the tariff consolidation effort? I'm curious if you have any sense on how long that process could take and would it require a rate case after receiving approval kind of across the new consolidated jurisdiction? Any other color there on sort of the relative rate levels be helpful to?
Speaker Change: Yeah, look, I think from our perspective, you know, it's still early days in order to be able to comment on rate levels or those types of things. But here's the benefit of it. This is a huge strategic move for our company to get.
Speaker Change: This onto one rate cycle and it really will help the communities in Maine as well as we can further socialize the cost of the entire operation across the entire group of customers because there are some very small systems.
Speaker Change: that are disadvantaged by not having such a large base of customers to distribute those cost over.
Speaker Change: Given that what I would expect to see is an ability like we talked about to reduce the load on not only our team but on customers and then also on the...
Speaker Change: It's main public utility commission staff as we prosecute rate cases. You can imagine that we're going down from multiple down to a single rate case and single Wick a filing to across all these and that will really be beneficial for everybody involved.
Speaker Change: got it. We're going to cheer you up.
Speaker Change: Richard, the one thing I would add, I wouldn't expect us to bring everybody to the same level of rates immediately. You know, that can be done gradually over time. But going forward, Andrew said, really smooth out the administrative aspects of filing multiple cases as opposed to...
Speaker Change: just a single case so it'll be good for everyone.
Richard Sunderland: No, that's very clear. And then one last one from me, you know, recognize cum up several times on two cue, but just curious if there are any updates you can offer on a query and you're interested in the assets and potential timeline.
Speaker Change: Yeah, you know, thank you Richard, I think if I recall now
Speaker Change: the EverSource team announced about February of 2024 that they were looking to...
Speaker Change: and I think they said publicly that they would like to wrap that up, at least announced who the successful bitter was by the end of 2024. We do remain interested in the assets there and while I can't.
Speaker Change: You know, comments specifically on the process, it certainly would seem reasonable to know by the end of the year who the successful purchaser is and then of course regulatory approval.
Speaker Change: would commence in 2025.
Speaker Change: So we really believe that it would be a great acquisition for our shareholders, but at the same time commit to remain disciplined and decisive about it going forward.
Speaker Change: Great, I'll leave it there, thank you very much for the time today.
Speaker Change: Thank you Richard. Thank you. One moment for our next question.
Speaker Change: Our next question comes from Jonathan Reeder with Wells Fargo, your line is open.
Jonathan Reeder: Can you hear us going into your hurry all the day?
Jonathan Reeder: Hey, how you all doing? Thanks for calling today. Very good. Thank you.
Jonathan Reeder: Thanks for taking the question. Just I guess piggybacking off of the last one with a clearing. And no one seems some Connecticut towns expressed concern over RWA's interest in buying a clearing and we'll kind of impact that might add up on.
Jonathan Reeder: their tax revenues and customer rates. How influential do you think those concerns are to the process?
Speaker Change: Thank you Jonathan, you know I saw the same articles and for those who may not have followed along.
Speaker Change: For example, a company such as ours, Connecticut, water in this case.
Speaker Change: We pay property taxes to communities based upon the assets invested to serve that community. It is part of our rate recovery approach.
Speaker Change: Many municipalities do not pay, of course, themselves, or in this case, if it were a, you know, a different quasi-manusable utility, wouldn't pay the same level in property taxes to that community.
Speaker Change: and so you know if you're a community leader and you see that the potential is there that
Speaker Change: Future Property Tax.
Speaker Change: Receipts would decrease and you know you would rightfully be quite concerned about that. So you know it's one of the ways that we you know participate in the communities and assist them and and I think it's a real issue. I think community leaders in Bridgeport and Stanford and and Greenwich and Torington and on and on can.
Speaker Change: Could be quite concerned about it. But if there were regional water authority in place, you know, they of course could try to make some amendments to those communities and help out. So I do think it would be a consequential matter, but I don't think it would be determined as Jonathan.
Speaker Change: Okay great.
Speaker Change: and then I guess shifting over to California, the CPEC, you know, recently issued the decision that lowers the energy facilities allow our own ways.
Jonathan Reeder: by 42 base of the 2225 by effect weight reducing the magnitude of that 2024 cost of capital and mechanism grease. Is there any avenue for the CPEC to do something similar for the waters for 225?
Speaker Change: You know Jonathan, I'll start and see if Andrew, I want to add to it, but so of course we've been tracking this proceeding as well and at this time I've no indication that a similar change is contemplated for the water utilities.
Speaker Change: We don't expect the energy decision to impact the way our WCCM is calculated.
Speaker Change: and similar to the energy decision, any change to that the methodology used to calculate our adjustment would have to be issued via a commission order. And there's again nothing to heat up at this moment that would suggest that or facilitate.
Speaker Change: Facilitate that and we'd obviously engaged at any time that we did sense or see that there was a change.
Speaker Change: you know being considered or proposed. So so far like I said, no indication at this time that we'd have a similar track.
Speaker Change: I made just that a couple things, Eric, that since the mechanism of recent time has been out, there's been three adjustments.
Speaker Change: 2-up and 1-down. We started off with the down actually and had 2-ups in the most recent time around.
Speaker Change: The thing that I commend about the mechanism is the two-way mechanism that goes up and down so it allows people to participate. In terms of the next adjustments.
Speaker Change: I don't know where the economy is ultimately going to go if I could forecast interest rates, I might not be talking to you on this call, but...
Speaker Change: Ods are greater that there's more downside pressure than upside pressure. And so if I were an electric utility, I would understand the need to do this. And if you compare the outcomes of...
Speaker Change: We are our cost of data has been in some of the other cost of capital mechanisms. The 20 basis points might be actually more consistent with what we're seeing today in the marketplace, but those can change over time. So that's the thing to keep in mind is what it might be here today, it can change in the future.
Speaker Change: Okay, great. You're just kind of sticking along this line.
Speaker Change: Can you discuss what SJWs and then you coordinate with the broader water utilities of the state but with the potential cost of capital strategy, do you think the new applications are likely to file in 2020 or 25?
Speaker Change: As scheduled or might there be a possibility to reach an agreement with PIO to defer the full bloom proceeding maybe possibly an exchange for a reduction in the allowed R-O-Ease.
Speaker Change: I think the odds are greater than not, like we'll have to see where things are at at the time and also what the commission workload is relative to us so it's a discussion that needs to happen.
Speaker Change: That being said, I think the odds are likely more likely that we will be end up filing in 2025. But that's a personal opinion and that's one without having that interaction to kind of find out what the workload is at the commission as well.
Speaker Change: and then last one from the appreciate that answer Andrew. Any potential impacts on the
Speaker Change: Yeah, look, I think there's something we will talk about that will give a revised five-year forecast in our next quarters. Earning this part of our also revised earnings forecast for 2020. Five.
Speaker Change: But for sure, we are seeing continued increases in capital investment requirements, and whether it's for a lead in carcopper or inflation pressures related to the PFAS, as well as quite frankly growth and other things that are going on our system that's very exciting but are going to require some very significant investments.
Speaker Change: for us going forward. So I think overall we're seeing a certainly a more positive movement when it comes to that. Now, coupled with that, and this is very important for us. Eric talked about affordability as well.
Speaker Change: and I'm sure he'll add some more comments to this but I would tell you that affordability is a key issue that we all are facing from a utility industry.
Speaker Change: and we are zeroed in on things that we can do to further make the bills affordable for our customers. And so we're trying to look through everything that we do and increase our efficiency.
Speaker Change: for the benefit of our customers and to allow that investment to happen, not all in the backs of the customers, but on a shared basis.
Speaker Change: and well-fed Andrew I think.
Speaker Change: We're viewing affordability as a strategic issue that we really need to think about comprehensively and propose solutions to the commissions and to our communities. And so, by working hard to reduce operating expenses.
Speaker Change: opens up a little headroom then in the bill to continue to invest, to provide safe and adequate drinking water. So all on the table to do our best to meet the affordability test for our communities.
Speaker Change: Excellent, appreciate the time today.
Jonathan Reeder: Thank you, Jonathan.
Jonathan Reeder: The End
Speaker Change: Our next question comes from Angie Sturgeon, who is with C4Ture line is open.
Angie Sturgeon: Thank you. So two questions. One is I understand the change in the earnings profile in California, but Andrew you still kept the or non-linear growth profile comments. I'm just wondering why that is if this California isn't this as possible.
Angie Sturgeon: Small doubt.
Angie Sturgeon: and then number two is then exposure that you have in California or any other jurisdiction to the data centers and the growth in water demand that those might have, again, I don't know exactly the number of jurisdictions, but I'm something either California or Texas.
Angie Sturgeon: Thank you.
Speaker Change: So I'll start off with the comments on the...
Speaker Change: You know the non-linear. We still have two big divisions in one smaller division and G. So no matter how you look at it, that's going to be the case and that we will have non-linear growth. But it's not as non-linear as it was before just.
Speaker Change: because of this current decision. But in general, it's something that's going to happen. And you can understand, you know, the comment that I said before, last time we started with a 13% increase when we first started our rate case in California.
Speaker Change: Now we're only at 3.91. So, but that's, that's, we're very happy with kind of where that's come out. There's nothing wrong. It's just the fact that we're making things more smooth for our customers.
Speaker Change: That's not necessarily always going to be the case and it just depends how well we do of continuing to drive down expenses, which helps offset those potential first year adjustments when you go in for a race case.
Speaker Change: So, so far so good.
Speaker Change: The second question do you want to take out? Yeah, on the data centers, it's a great question. But I would not expect to see volume increases driven by data centers using water for cooling. I wouldn't expect to see significant volume metric changes.
Speaker Change: Resulting from that, but I would say that the economic development aspects inevitably the growth that comes with that, there would definitely be infrastructure demands around that to support that community's growth and development.
Speaker Change: and so more of a secondary effect for our Sanctuary.
Speaker Change: Awesome, thank you.
Speaker Change: Thank you very much. Thanks for your call today.
Speaker Change: and I'm not showing any further questions at the time. I like to turn the call back over to Eric Thornburg for Nicklaus in remarks.
Eric Thornburg: Well thank you, Operator. Really appreciate that. And thank you everyone for joining us today.
Eric Thornburg: We're in the home stretch of 2024 but there's still much to look forward to.
Eric Thornburg: including a CPUC decision on our settlement agreement in our California GRC. Implementation of our AMI initiative, progress with bringing greater water supply online and taxes and applying for consolidation of our tariffs and main.
Eric Thornburg: and advancing our PFOS remediation strategy.
Eric Thornburg: We also continue to invest in our infrastructure, aiming to replace 1% of our pipe nationwide annually, and explore the possibilities of how to ensure continued affordability for our customers as the capital needs of operations.
Eric Thornburg: in the Water Utility Industry Continues Dancrease.
Eric Thornburg: STW Group proudly leverages our national platform to support our distinct local operations in our shared mission to reliably serve high quality water to 1.6 million people across four states.
Eric Thornburg: And while we do this, we make sure we execute our growth strategy and deliver shareholder value, including paying a dividend, which we have faithfully done for 80 straight years. And we've raised that dividend for 56 consecutive years.
Eric Thornburg: I recognize that it's our culture of service to our customers and the local communities that underlies our success and I'm very proud of our people who make it all possible.
Eric Thornburg: Thank you again for your time today, Andrew questions. We look forward to sharing our progress with you next quarter. In the meantime, Andrew and I, along with the rest of the SJW Group team, are always available for follow-up. Thank you again for your interest in SJW Group.
Speaker Change: Thank you ladies and gentlemen, this has concluded today's presentation, you may now disconnect and have a wonderful day.
Speaker Change: [inaudible]
Speaker Change: [inaudible]
Speaker Change: Hello, I'm Andrew Walters, I'm a
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Speaker Change: It is very common in America in the Baja Mythical Land, that the Himalayan prince from India is also traveling on a ferry that, like the insanely fast movimento del dieño, looks like the items on his shoulder. When the Corhi. viene Independent, he will not only travel around the world, he will take possession absolutely of the World, not only three countries at a time,
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Speaker Change: Good day and thank you for standing by. Welcome to the SJW Group Q3 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star one one again. Please be advised, today's conference is being recorded. I would like to hand the conference over to your speaker today, Andrew Walters, Chief Financial Officer and Treasurer. Please go ahead.
Andrew Walters: Thank you, Operator. Welcome to our third quarter 2024 Financial Results Conference Call for SJW Group.
Andrew Walters: I will be presenting today with Eric Thornburg, Chair of the Board, President, and Chief Executive Officer.
Andrew Walters: 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.
Andrew Walters: 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 expressed or implied by the forward-looking statements.
Andrew Walters: for a description of some of the factors that could cause actual results to be different from statements in this presentation.
Andrew Walters: We refer you to the financial results press release and to 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.
Andrew Walters: All forward-looking statements are made as of today, and SJW Group disclaims any duty to update or revise such statements.
Andrew Walters: You will have an opportunity to ask questions at the end of the presentation. This webcast is being recorded and an archive of the webcast will be available until January 20, 2025. You can access the press release and the webcast at SJW Group's website.
Andrew Walters: In addition, some of the information discussed today includes the non-GAAP financial measures of adjusted net income and adjusted diluted earnings per share that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP.
Andrew Walters: These non-GAAP financial measures should be considered as a supplement to the financial information prepared on a GAAP basis rather than an alternative to respective GAAP.
Andrew Walters: Financial Measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the table in the appendix of our presentation.
Andrew Walters: I will now turn the call over to Eric.
Andrew Walters: Welcome, everyone, and thank you for joining us. My name's Eric Thornburg, and it is my honor to serve as chair, president, and CEO of SJW Group.
Andrew Walters: I'm pleased to share that in the third quarter of 2024, we continued to meet drinking water and environmental regulations, deliver on our public health and environmental stewardship commitments, and provide high-quality water and service to customers.
Andrew Walters: We also delivered strong financial results, including a 7% increase in net income from this time last year.
Andrew Walters: Our performance reflects our continued execution of our successful growth strategy.
Andrew Walters: which is focused on investments in our infrastructure and water systems across our national footprint and constructive engagement and consensus building with key local stakeholders.
Andrew Walters: For example,
Andrew Walters: In California, we filed a settlement agreement with the California Public Utilities Commission for San Jose Waters 2025 through 2027 general rate case that we constructively negotiated with the Public Advocates Office.
Andrew Walters: resolving all but two issues together.
Andrew Walters: We also filed our second system improvement charge in Texas and received approval for infrastructure recovery mechanism filings in both Connecticut and Maine that together covered almost 18 miles of pipe replacement in New England.
Andrew Walters: Year-to-date, we have invested $252 million.
Andrew Walters: or approximately 76% of our $332 million capital expenditure plan for 2024, in water and wastewater utility infrastructure across all four states.
Andrew Walters: and we're steadily advancing our five-year plan of investing 1.6 billion dollars.
Andrew Walters: Also, our California operation anticipates receiving a grant of approximately eight million dollars through the Grid Resilience and Innovation Partnerships Program, or GRIP, for advancing clean energy infrastructure.
Andrew Walters: We anticipate matching that amount for a total $16 million investment to increase operational resilience and reduce energy costs.
Andrew Walters: and our Connecticut operations received a Top Workplace Award from the Hartford Current for the fourth consecutive year.
Andrew Walters: Importantly, we delivered earnings per
Andrew Walters: and adjusted non-GAAP earnings per diluted share of $1.18 in the third quarter.
Andrew Walters: Now, while I'm proud of our accomplishments, our culture is not one of complacency.
Andrew Walters: Our industry is facing significant challenges with the need to meet new water quality standards.
Andrew Walters: and replace aging infrastructure while also maintaining affordability for our customers.
Andrew Walters: We know that regulators, legislators, and other policymakers are looking to us to be leaders.
Andrew Walters: to find creative, resourceful, and efficient solutions to balance these, at times, competing needs.
Andrew Walters: and we are up for that challenge.
Andrew Walters: We are focused on forward-thinking solutions that prioritize public health and safety.
Andrew Walters: while optimizing operational efficiency, whether through the use of AI technology, economies of scale, or other continual improvement exercises.
Andrew Walters: Our industry-leading scientists and engineers are busy designing PFAS treatment facilities that meet the highest regulatory expectations.
Andrew Walters: while also tackling emerging contaminants such as microplastics through groundbreaking research.
Andrew Walters: In parallel, we're diligently evaluating our pioneering income assistance programs in California and Connecticut to see how we can do more for a greater number of customers across our national footprint.
Andrew Walters: We also continue to be dedicated to constructive engagement and partnership with our local stakeholders.
Andrew Walters: to ensure that we are all well-positioned to achieve our shared mission of serving our communities effectively.
Andrew Walters: That is our culture, and it's also our competitive advantage.
Andrew Walters: With that, I will pass it over to Andrew to review our detailed financial results and regulatory updates in our state operations.
Andrew Walters: Andrew. Thank you, Eric.
Andrew Walters: This morning, before the market opened, we released our third quarter 2024 operating results.
Andrew Walters: The increase was largely driven by rate increases, including higher pass-through water costs.
Andrew Walters: We also experience higher water production expense.
Andrew Walters: Net income for the quarter was $38.7 million, which was a 7% increase over the $36.2 million reported in the third quarter of 2023.
Andrew Walters: Diluted earnings per share was $1.17 compared to $1.13 in 2023.
Andrew Walters: Third quarter merger and acquisition expenses and real estate transactions that netted 0.3 million after tax loss have been excluded in non-GAAP results reflected in adjusted net income of 39 million dollars and adjusted diluted earnings per share of $1.18.
Andrew Walters: Turning to 3rd Quarter EPS Bridge.
Andrew Walters: You can see the 49 cents of the revenue increase was driven primarily by rate increases in California and Connecticut and lower income tax expense because of tax accounting method change that yielded 11 cents.
Andrew Walters: The revenue increase was offset by higher water production cost of 38 cents and six cents in higher maintenance costs compared to the same period last year.
Andrew Walters: Year-over-year revenue increased by 10%.
Andrew Walters: Approximately 8.5 million of the revenue increase was passed through charges for purchased water and 8.5 million of the increase was from general rate cases and infrastructure recovery mechanisms.
Andrew Walters: Water production expense in the quarter increased 16% compared to 2023.
Andrew Walters: The increase was principally driven by rate increases from our water wholesaler in California and higher production volume.
Andrew Walters: Total other operating expenses increased 8% year-over-year and was primarily driven by higher maintenance, administration and general cost, and depreciation.
Andrew Walters: As we noted for the quarter, the increase was largely driven by rate increases, including higher pass-through water costs.
Andrew Walters: Net income for the year to date was $71 million, an 8% increase.
Andrew Walters: Diluted earnings per share was $2.18 compared to $2.09 in 2023.
Andrew Walters: As mentioned earlier, real estate transaction and merger and acquisition expenses that netted a $0.9 million after tax loss year-to-date have been excluded in non-GAAP results.
Andrew Walters: As you can see, $1.11 of the revenue increase was driven primarily by rate increases in California and Connecticut.
Andrew Walters: Higher usage and customer growth added 20 cents.
Andrew Walters: Changes in the allowance for uncollectible customer accounts contributed $0.19 and $0.10 was from lower income tax expense because of a tax accounting method change related to the repairs tax deduction.
Andrew Walters: The revenue increase was partially offset by higher water production costs of $0.73.
Andrew Walters: An increase in administrative and general expense of 18 cents.
Andrew Walters: as well as an increase in depreciation and amortization, maintenance cost, interest expense, and the release of an income tax reserve in 2023.
Speaker Change: Only $65 million in gross equity proceeds was raised year-to-date through our at-the-market equity program or ATM. Our current ATM program is set to expire on November 17th. We intend to enter into an agreement for a new ATM program prior to that date.
Speaker Change: At the end of third quarter, we had $93 million drawn on our $350 million bank lines of credit, which left $257 million available for short-term financing of utility plant additions and operating activities.
Speaker Change: In the third quarter, we raised a total of $125 million through long-term debt offerings in California and Connecticut that were primarily used to pay down our bank lines of credit.
Speaker Change: By the end of 2024, we plan to raise an additional $35 million in long-term debt that will be used to pay down the line of credit further.
Speaker Change: The average borrowing rate for the line of credit advances year-to-date through September was approximately 6.53 percent. The average borrowing rate in the same period of 2023 was 6.16 percent.
Speaker Change: The effective consolidated income tax rates for the third quarter of 2024 and 2023 were approximately 5% and 11% respectively.
Speaker Change: As Eric mentioned earlier, a settlement agreement negotiated with the Public Advocates Office has been filed with the CPUC for San Jose Waters 2025 through 2027 general rate case.
Speaker Change: Only two policy issues remain to be litigated, chemical and waste disposal cost in the full cost balancing account and adjusting the service charge calculation.
Speaker Change: The settlement agreement also authorizes a 450 million dollar capital expenditure budget that would address several key needs such as treating PFAS to meet drinking water standards finalized by the US EPA earlier this year.
Speaker Change: Reducing greenhouse gas emissions through solar generation, energy storage systems to replace diesel generators,
Speaker Change: Fleet Electrification and Advanced Acoustic Leak Detection.
Speaker Change: and advancing the CPUC's Environmental and Social Justice Action Plan to improve access to high quality water service.
Speaker Change: climate resiliency, and economic and workforce development.
Speaker Change: It also allows greater revenue recovery through the service charge and further aligns authorized to actual usage through a lower sales forecast.
Speaker Change: The settlement agreement includes a $53.1 million or 9.4% total revenue increase at the 2025-2027 authorized sales and customer forecast.
Speaker Change: The annual step increase ranged between approximately 2.6% to 3.9%.
Speaker Change: The application we filed with the CPUC in January of 2024 requested a $103 million revenue increase over the three years and proposed a three-year, $540 million capital expenditure program.
Speaker Change: We view the settlement agreement as a testament to our ability to work with stakeholders and regulators to achieve constructive outcomes that are beneficial to our customers and local communities while also delivering shareholder value.
Speaker Change: If approved, the settlement agreement positions us well to continue our robust and necessary investment in our water system infrastructure.
Speaker Change: A CPUC decision is expected in the fourth quarter of 2024 with new rates effective January 1st, 2025.
Speaker Change: San Jose Water reached an agreement with the City of Cupertino, California to manage the city's water system that became effective on October 1st, 2024.
Speaker Change: The initial term of the agreement is 12 years with a provision to extend it for an additional 8 years.
Speaker Change: Under the new agreement, we will continue to operate and maintain the city's water system and pay an upfront fee of $22.1 million concession fee.
Speaker Change: which will be funded with equity through our ATM and we will make annual payments of approximately 1.8 million dollars subject to increases each year based on a specified construction cost index.
Speaker Change: We first entered into an agreement with Cupertino in 1997. Since then this arrangement has proven beneficial to our customers of San Jose Water and customers of Cupertino.
Speaker Change: As a large neighboring water system, we bring scale and efficiency to the city's water system operation and increase scale that helps San Jose Water serve its customers as well.
Speaker Change: A CPUC-authorized annualized revenue increase of $768,000 became effective on July 1, 2024.
Speaker Change: Revenue increase was related to a requested rate-based increase of approximately $4.8 million for advanced metering infrastructure project.
Speaker Change: We're planning to invest approximately 27 million dollars in this project in 2024.
Speaker Change: It is a $100 million project that is separate from the general rate case.
Speaker Change: capital budget, and majority of the
Speaker Change: On September 18, 2024, the Kinetic Public Utilities Regulatory Authority authorized a $4.3 million increase in annualized revenue through the Water, Infrastructure, and Conservation Adjustment, or WICA.
Speaker Change: The WICA surcharge became effective on October 1st and stands at 3.43%.
Speaker Change: The revenue increase was for approximately $41.9 million in completed infrastructure replacement projects that are in service and providing benefit to our customers.
Speaker Change: As we mentioned in the second quarter, Connecticut Water's general rate case became effective on July 1st, 2024. As a reminder, the general rate case provided an annual revenue increase of $6.5 million with an opportunity to earn an additional $1.1 million by achieving certain performance metrics.
Speaker Change: a 9.3% return on equity, and it maintained our 53-47% equity-to-debt capital structure.
Speaker Change: This past week, Maine Water filed a general rate case application for the Camden-Rockland Division with the Maine Public Utilities Commission.
Speaker Change: Main water is requesting a revenue increase of 1.1 million or 15.9% above current authorized revenue.
Speaker Change: A decision is expected in the second quarter of 2025.
Speaker Change: on September 30th of 2024.
Speaker Change: A Water Infrastructure Charge, or WISC, application was filed for the Millinocket Division to increase annualized revenues by $46,000.
Speaker Change: The decision is expected in the fourth quarter of 2024.
Speaker Change: On August 1st of 2024, WISC increases were authorized in two divisions for a total annual revenue increase of $52,000.
Speaker Change: I also want to share that Maine Water intends to file a petition with the Maine Public Utilities Commission before the end of the year requesting consolidation of the tariffs in the company's 10 rate districts.
Speaker Change: It is a move that would streamline general rate case and WISC applications.
Speaker Change: which are currently filed on a district-by-district basis.
Speaker Change: The company typically files 2-4 general rate case and WISC filings each year.
Speaker Change: This will improve administrative efficiency, reduce regulatory lag, and increase the burden on regulatory agencies and their staff, and ease the burden.
Speaker Change: Texas Water filed for a second system improvement charge, or SIC, this past September.
Speaker Change: And SIC is an infrastructure recovery mechanism that is similar to WICA in Connecticut and WISC in Maine.
Speaker Change: We are requesting a $4.3 million increase in annual revenues for more than $41 million invested in completed infrastructure projects.
Speaker Change: We are targeting the decision in the first half of 2025.
Speaker Change: The closing has not yet been scheduled. We expect to fund the acquisition of 3009 with equity through our ATM program.
Speaker Change: We have been experiencing drought in our Texas service area and had water conservation measures in place for much of 2024.
Speaker Change: As a result, we will see lower water usage in 2024 compared to 2023.
Speaker Change: As you will recall, our KT Water Resources acquisition in 2023 has a projected 6,000 acre-feet of untapped water supply in the heart of Komal County.
Speaker Change: Bringing the supply online to serve customers is a priority for us.
Speaker Change: It will be a multi-phase project and our goal is to complete it by the end of 2026.
Speaker Change: KT Water Resources was initially acquired by our unregulated subsidiary in Texas Water Resources.
Speaker Change: In the third quarter of this year, our regulated utility purchased the assets of KT Water Resources from our unregulated subsidiary.
Speaker Change: The regulated utility will fund the capital expenditures to bring the additional supply online.
Speaker Change: 2024 guidance for GAAP is currently at $2.65 to $2.75 per diluted share and we reaffirm our guidance of $2.68 to $2.78 per diluted share on a non-GAAP basis.
Speaker Change: As mentioned earlier, we have reached our $65 million in gross proceeds from equity issuances, which was the top end of our guidance, excluding acquisitions.
Speaker Change: We maintain a five-year capital investment outlook of 1.6 billion, which includes approximately 230 million in estimated PFAS remediation based on finalized maximum contaminant levels.
Speaker Change: The remaining factors underlying our 2024 guidance include potential for reduced usage based on conservation and other factors.
Speaker Change: as well as strategic reinvestments in our business in 2024, such as approximately 1.1 million in customer-related software expended year to date.
Speaker Change: I would like to highlight that our guidance range is consistent with our long-term growth rate and is independent of real estate sales or merger and acquisition activities.
Speaker Change: Further, we reaffirm our stated long-term growth rate of 5 to 7 percent that is anchored off our 2022 diluted earnings per share of $2.43.
Speaker Change: which is non-linear because of rate key cycles.
Speaker Change: I want to note that our recent settlement in California does provide a flatter rate impact than in years past.
Speaker Change: with that.
Speaker Change: I will turn the call over to Eric. Thank you, Andrew. Well done. One of the ways we measure our impact and success as a company is how have we been a force for good?
Eric Thornburg: Just a couple of weeks ago, Newsweek notified us that SJW Group has been selected as one of America's greenest companies 2025.
Eric Thornburg: We are one of only two water utilities selected for this prestigious recognition.
Eric Thornburg: This recognition reflects the passion and dedication of our people who take our responsibility as environmental stewards very seriously.
Eric Thornburg: Another exciting new development is that San Jose Water, along with several of our California regulated private utility peers,
Eric Thornburg: were awarded a $50 million grant through the Grid Resilience and Innovation Partnerships, or GRIP, program for the installation of battery energy storage systems at critical high-power use pumping stations.
Eric Thornburg: Established by the bipartisan federal investment focused on modernizing and strengthening the resilience of the U.S. electric grid.
Eric Thornburg: The GRIP program will integrate battery storage energy storage systems at various sites operated by San Jose Water and our peers.
Eric Thornburg: To meet the GRIP cost share requirements and secure these funds,
Eric Thornburg: San Jose Water has committed to match its anticipated $8 million share of the grant.
Eric Thornburg: bringing the total investment to an anticipated $16 million.
Eric Thornburg: This funding represents a substantial investment in sustainability and operational flexibility for San Jose Water.
Eric Thornburg: significantly enhancing resilience
Eric Thornburg: Only three California applicants were
Speaker Change: Other green achievements that I'd like to highlight include, between 2019 and 2022, we reduced our greenhouse gas emissions by over 20 percent and we're on track for a further reduction in 2023.
Speaker Change: We will share that result after it's been audited.
Speaker Change: and our goal is a 50% reduction by 2030 from a 2019 baseline.
Speaker Change: In California, our Advanced Leak Detection Program, which leverages AI technology, continues to be leading edge with water loss to leaks, or non-revenue water, below 10% compared to an industry benchmark of 15%.
Speaker Change: And we are fostering the expanded use of recycled water for irrigation to better preserve drinking water supplies.
Speaker Change: In Connecticut, we've been recognized as a top workplace for the fourth consecutive year by the Hartford Current.
Speaker Change: We're especially humbled that the award is based on the results of an anonymous employee survey conducted by an independent third party.
Speaker Change: The survey asks employees about company culture, career development, and the organization's purpose and values.
Speaker Change: We appreciate our employees' partnership in creating a work environment that sets us up for world-class service and success.
Speaker Change: We'd like to extend a warm welcome to Pura Commissioner David Arcanti and express our deep appreciation to outgoing Commissioner and Vice Chairman Jack Petkosky for his nearly four decades of public service, including 27 years at Pura.
Speaker Change: Over the last several years, we've built a strong national platform to support our growing local operations.
Speaker Change: to the good times and the inevitable headwinds.
Speaker Change: And with a lot of effort and intention, we've maintained our fundamental values and culture through this growth.
Speaker Change: and that culture continues to guide us and distinguish us as we make business decisions that build trust with stakeholders.
Speaker Change: I continue to be inspired by the contributions of our talented teams across our local operations.
Speaker Change: as they consistently provide an essential service with integrity, reliability, genuine care, and transparency.
Speaker Change: I'm confident our team's commitment to serving customers, communities, and the environment will continue to excel SJW Group's ability to deliver value to our stakeholders and reinforce our strong position for a successful future.
Speaker Change: And with that, I'll turn the call back over to our operator.
Speaker Change: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1 1 on your telephone. If your question has been answered, you assume yourself from the queue, please press star 1 1 again. We'll pause for a moment while we compile our Q&A roster.
Speaker Change: Our first question comes from Richard Sunderland with J.P. Morgan. Your line is open.
Richard Sunderland: Hi, good morning. Thank you for the time today.
Speaker Change: Hey, hi Richard. Thanks for calling in.
Richard Sunderland: Good morning.
Richard Sunderland: Great, thank you. Starting with the usage trends in Texas, can you speak a little bit that about the sales there relative to the 2024 guidance assumptions? You know, are they on track, ahead, or behind? And I guess similarly, how those trends, the GRC settlement, and other recent developments position you on a 2025 basis relative to the five to seven percent long-term growth rate?
Speaker Change: That's an excellent question, Richard. So let's start with 2024. We've definitely suffered some decreases due to usage and conservation.
Speaker Change: in Texas this year. We are coming into the fourth quarter, so that impact becomes less in terms of the total dollar amount, but it still remains in place.
Speaker Change: It is helpful the fact that it's going to Stage 3 from Stage 4, but there's always some variation within the Texas area because there's different areas that have different drought levels, but that's still a positive development.
Speaker Change: So as we look at the fourth quarter this year, that will be something we will continue to monitor. We are not adjusting our guidance range to that and so I would expect us to be kind of consistent with where
Speaker Change: where we've talked about so far. Now for 2025, however, we would expect the drought conditions to persist.
Speaker Change: We will have the benefit of the settled rate case knock on wood that that will happen according to
Speaker Change: when we expect it to, and we will also have the full year of the Connecticut rate case. So we are fully on track for meeting our long-term growth. I would say the one highlight that I put in into this
Speaker Change: comments today was to talk about the fact that the California rate increases.
Speaker Change: This year, or this coming year, starts in 2025 at 3.91%, assuming that that gets approved. That compares to a 13.35% that happened the last time that we had an approved rate case in 2022.
Speaker Change: So the benefit of that is it flattens out our overall kind of earnings and revenue growth over a three-year cycle
Speaker Change: So that's something I just want to highlight. It's good for customers and it's good, it's better for us too as we look at our earnings growth over a period of time.
Speaker Change: Got it. Great. Thank you for all the color there. Yes, very helpful.
Speaker Change: Do you have the main process that you that you highlight in the slides there on the tariff consolidation effort?
Speaker Change: I'm curious if you have any sense on how long that process could take, and would it require a rate case after receiving approval, kind of across the new consolidated jurisdiction. Any other color there on sort of the relative rate levels would be helpful too.
Speaker Change: Yeah, look, I think from our perspective, you know, it's still early days in order to be able to comment on rate levels or those types of things, but here's the benefit of it. This is a huge strategic move for our company to get...
Speaker Change: this on to one rate cycle, and it really will help the communities in Maine as well as we can further socialize the cost of the entire operation across the entire group of customers because there are some very small systems
Speaker Change: that are disadvantaged by not having such a large base of customers to distribute those costs over.
Speaker Change: Given that, what I would expect to see is an ability like we talked about to reduce the load on not only our team but on customers and then also on the
Speaker Change: Maine Public Utility Commission staff as we prosecute rate cases. You can imagine that we're going down from multiples down to a single rate case and single WICA filings across all these and that will really be beneficial for everybody involved.
Speaker Change: Got it very true
Speaker Change: Richard, the one thing I would add, I wouldn't expect us to bring everybody to the same level of rates immediately, you know, that can be done gradually over time, but going forward will, as Andrew said, really smooth out the administrative aspects of filing multiple cases as opposed to
Speaker Change: just a single case, so it'll be good for everyone.
Speaker Change: No, got it. That's very clear. And then one last one from me, you know, RECOGNIZE came up several times on 2Q, but just curious if there are any updates you can offer on Aquarian, your interest in the assets and potential timeline.
Speaker Change: Yeah, you know, thank you, Richard. I think, if I recall now,
Speaker Change: The Eversource team announced about February of 2024 that they were looking to sell Aquarian and I think they've said publicly that they would like to wrap that up, at least announce who the successful bidder was by the end of 2024.
Speaker Change: We do remain interested in the assets there and and while I can't
Speaker Change: comments specifically on the process, it certainly would seem reasonable to know by the end of the year who the successful purchaser is. And then, of course, regulatory approval.
Speaker Change: would commence in 2025, so.
Speaker Change: So, we really believe that it would be a great acquisition for our shareholders, but at the same time, commit to remain disciplined and decisive about it going forward.
Speaker Change: Great. I'll leave it there. Thank you very much for the time today.
Speaker Change: Thank you, Richard. Thank you.
Speaker Change: Our next question comes from Jonathan Reeder with Wells Fargo. Your line is open.
Jonathan Reeder: Hey Eric and Andrew, how are y'all today?
Eric Thornburg: Hey, hi Jonathan, thanks for calling today. Very good, thank you.
Jonathan Reeder: Thanks for taking the question. Just, I guess, piggybacking off of the last one with Aquarian, I know I've seen some Connecticut towns express concern over RWA's interest in buying Aquarian and, you know, what kind of impact that might have on their tax revenues and customer rates. How influential do you think those concerns are to the process?
Speaker Change: Yeah, thank you Jonathan. Yeah, I saw the same articles and for those who may not have followed along
Speaker Change: For example, a company such as ours, Connecticut Water, in this case,
Speaker Change: You know, we pay property taxes to communities based upon the assets invested, you know, to serve that community. It is part of our rate recovery approach. Many municipalities do not pay, of course, themselves, or in this case, if it was a
Speaker Change: you know, a different quasi-municipal utility wouldn't pay the same level in property taxes to that community and
Speaker Change: And so, you know, if you're a community leader and you see that the potential is there, that
Speaker Change: future property tax
Speaker Change: receipts would decrease, then, you know, you would rightfully be quite concerned about that. So, you know, it's one of the ways that we, you know, participate in the communities and assist them.
Speaker Change: And I think it's a real issue. I think community leaders in Bridgeport and Stamford and Greenwich and Torrington and on and on can.
Speaker Change: could be quite concerned about it. But if there were a regional water authority in place, they of course could try to make some amends to those communities and help out. So I do think it would be a consequential matter, but I don't think it would be determinative, Jonathan.
Jonathan Reeder: Okay, great.
Speaker Change: And then, I guess, shifting over to California, the CPUC, you know, recently issued the decision that lowers the energy utilities, allow our own weeds.
Speaker Change: by a 42-basis 2025 by effectively reducing the magnitude of that 2024 cost-to-capital mechanism increase. Is there any avenue for the CPUC to do something similar for the Waters for 2025?
Speaker Change: You know, Jonathan, I'll start and see if Andrew might want to add to it, but so, of course, we've been tracking this proceeding as well, and at this time have no indication that a similar change is contemplated for the water utilities.
Speaker Change: We don't expect the energy decision to impact the way our WCCM is calculated.
Speaker Change: And similar to the energy decision, any change to the methodology used to calculate our adjustment would have to be issued via a commission order. And there's, again, nothing teed up at this moment that would suggest that or facilitate.
Speaker Change: facilitate that and we'd obviously engage at any time that we did sense or see that there was a change.
Speaker Change: you know, being considered or proposed. So, so far, like I said, no indication at this time that we'd have a similar, similar track.
Speaker Change: I might just add a couple things, Eric, that, you know, since the mechanism of recent time has been out, there's been three adjustments.
Speaker Change: two up and one down. We started off with the down actually and had two ups in the most recent time around.
Speaker Change: The thing that I commend about the mechanism is the two-way mechanism. It goes up and down so it allows people to participate. In terms of the next adjustment...
Speaker Change: I don't know where the economy is ultimately going to go. If I could forecast interest rates, I might not be talking to you on this call.
Speaker Change: odds are greater that there's more downside pressure than upside pressure. And so if I were an electric utility, I would understand the need to do this. And if you compare the outcomes of
Speaker Change: where our cost of debt has been and some of the other cost of capital mechanisms. The 20 basis points might be actually more consistent with what we're seeing today in the marketplace, but those can change over time. So that's the thing to keep in mind. It's while it might be here today, it can change in the future.
Speaker Change: Okay, great. Just kind of sticking along those lines.
Speaker Change: Can you discuss, you know, what SJWs, and I know you kind of coordinate with the broader water utilities in the state, but the potential cost of capital strategy, you know, do you think the new applications are likely to be filed in 2025 as scheduled or, you know, might there be a possibility to reach an agreement with, you know, PAO to defer the full-blown proceeding, you know, maybe possibly in exchange for a reduction in the allowed ROEs?
Speaker Change: Look, I think the odds are greater than not, like we'll have to see where things are at at the time and also what the commission workload is relative to us, so it's a discussion that needs to happen.
Speaker Change: That being said, I think the odds are likely, more likely, that we will be, end up filing in 2025. But that's a personal opinion, and that's one without having that interaction to kind of find out what the workload is at the Commission as well.
Speaker Change: Okay, and then last one for me, I appreciate that answer, Andrew. Any potential impacts on the CapEx budget from the EPA's recently finalized lead and copper rule?
Speaker Change: But, for sure, we are seeing continued increases in capital investment requirements, and whether it's for lead and copper or inflation pressures related to the PFAS, as well as, quite frankly, growth and other things that are going on in our system that's very exciting but are going to require some very significant investments.
Speaker Change: for us going forward. So I think overall, we're seeing certainly a more positive movement when it comes to that. Now, coupled with that, and this is very important for us, Eric talked about affordability as well.
Speaker Change: And I'm sure he'll add some more comments to this, but I would tell you that affordability is a key issue that we all are facing from a utility industry.
Speaker Change: and we are zeroed in on things that we can do to further make the bills affordable for our customers. And so we're trying to look through everything that we do and increase our efficiency.
Speaker Change: for the benefit of our customers and to allow that investment to happen not all on the backs of the customers, but on a shared basis.
Speaker Change: And well said, Andrew, I think.
Speaker Change: We're viewing affordability as a strategic issue that we really need to think about comprehensively and propose solutions to the commissions and to our communities. And so by working hard to reduce operating expense, it.
Speaker Change: opens up a little headroom then in the bill to continue to invest to provide safe and adequate drinking water. So all on the table to do our best to meet the affordability test for our communities.
Speaker Change: Excellent, appreciate the time today.
Jonathan Reeder: Thank you, Jonathan.
Speaker Change: Our next question comes from Angie Sturzynski with Seaport. Your line is open.
Angie Sturzynski: Thank you. So two questions. One is I understand the change in the earnings profile in California, but Andrew, you still kept your nonlinear growth profile comments. I'm just wondering why that is, if California is most...
Angie Sturzynski: smoothed out.
Angie Sturzynski: And then number two is, is there any exposure that you guys have in California or any other jurisdiction to the data centers and the growth and water demand that those might have? Again, I don't know exactly in what jurisdiction, but I'm assuming either California or Texas.
Angie Sturzynski: Thank you.
Angie Sturzynski: So I'll start off with the comments on the
Speaker Change: You know, the nonlinear, we still have two big divisions and one smaller division, Angie. So no matter how you how you look at it, that's going to be the case and that we will have nonlinear growth, but it's not as nonlinear as it was before just.
Speaker Change: because of this current decision. But in general, it's something that's going to happen. And you can understand, you know, the comment that I said before, last time we started with a 13% increase when we first started our rate case in California.
Speaker Change: Now we're only at 3.91, but we're very happy with kind of where that's come out. There's nothing wrong, it's just the fact that we're making things more smooth for our customers.
Speaker Change: That's not necessarily always going to be the case, and it just depends how well we do of continuing to drive down expenses, which helps offset those potential first-year adjustments when you go in for a rate case.
Speaker Change: So, so far so good. The second question, do you want to take that one? On the data centers, it's a great question, but I would not expect to see volume increases driven by data centers using, you know, water for cooling. I wouldn't expect to see significant...
Speaker Change: volumetric changes.
Speaker Change: resulting from that, but I would say that, you know, the economic development aspects and inevitably the growth that comes with that, there would definitely be infrastructure demands around that to support that community's growth and development.
Speaker Change: and so more of a secondary effect for us, Angie.
Speaker Change: Awesome, thank you.
Speaker Change: Thank you very much. Appreciate your call today.
Speaker Change: And I'm not showing any further questions at this time. I'd like to turn the call back over to Eric Thornburg for any closing remarks.
Eric Thornburg: Well, thank you, operator. Really appreciate that. And thank you, everyone, for joining us today.
Eric Thornburg: and advancing our PFAS remediation strategy.
Eric Thornburg: We will also continue to invest in our infrastructure.
Eric Thornburg: aiming to replace 1% of our pipe nationwide annually, and explore the possibilities of how to ensure continued affordability for our customers as the capital needs of operations in the water utility industry continues to increase.
Eric Thornburg: SJW Group proudly leverages our national platform to support our distinct local operations in our shared mission to reliably serve high-quality water to 1.6 million people across four states.
Eric Thornburg: And while we do this, we make sure we execute our growth strategy and deliver shareholder value, including paying a dividend, which we have faithfully done for 80 straight years. And we've raised that dividend for 56 consecutive years.
Eric Thornburg: I recognize that it's our culture of service to our customers and the local communities that underlies our success, and I'm very proud of our people who make it all possible.
Eric Thornburg: Thank you again for your time today and your questions. We look forward to sharing our progress with you next quarter. In the meantime, Andrew and I, along with the rest of the SJW Group team, are always available for follow-up. Thank you again for your interest in SJW Group.
Speaker Change: Thank you ladies and gentlemen. This concludes today's presentation. You may now disconnect and have a wonderful day.