Q4 2024 California Water Service Group Earnings Call
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Speaker Change: Hello, and thank you for standing by. I would like everyone to be welcomed to the California Water Service Group Q4 2024 and Full Year Earnings Conference Call. I would now like to turn the call over to our CFO, Jim Lynch. Please go ahead.
Speaker Change: Thank you, Dustin. Welcome, everyone, to our fourth quarter 2024 results call for California Water Service Group.
Speaker Change: With me today is Martin Kropelnicki, our Chairman and CEO, and Greg Milleman, Vice President of Rates and Regulatory Affairs.
Speaker Change: Replay dial-in information for this call can be found in our quarterly results earnings release, which was issued earlier today. A replay of today's call will be available until March 31st, 2025.
Speaker Change: Before looking at our fourth quarter 2024 results, I'd like to cover forward-looking statements.
Speaker Change: During our call, we may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company's current expectations.
Speaker Change: As a result, we strongly advise all current shareholders and interested parties to carefully read the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Qs, press releases, and other reports filed with the Security and Exchange Commission.
And now I'll turn the call over to Marty.
Marty: Thank you, Jim. Good morning, everyone. I'm going to give you a brief overview before we jump into the details. And I'll just start off by saying what a difference a year makes.
Marty: We started 2024 with a delayed 21 general rate case for California that was financially very challenging for the company.
Marty: And now we end the year in excellent financial position, setting a new number of highs on certain critical business elements, including revenue, capital investment from our infrastructure improvement plans, rate-based growth, and dividend growth.
and in our continued work on wildfire hardening, resiliency planning.
Marty: and sustainability and our proactive approach to emergency preparedness and response planning. And it really was one heck of a year. I think as we go through the results here today, I believe you will agree that Cal Water accomplished a lot in 2024 under difficult circumstances.
Marty: But by the end of the year, it has positioned us very, very well for continued success in 2025 and beyond. So, Jim, with that, why don't we jump into the results for the year? Great.
Jim Lynch: As Marty mentioned, we did achieve strong financial results in 2024. We benefited from both new rates and the new rate structure that was authorized in our 2021 California general rate case.
Jim Lynch: You may recall that the CPC issued our 2021 GRC decision in March of 2024. As a result, we also benefited from 2020-2023 interim rate relief at the time the decision was issued.
Jim Lynch: Beyond the 2021 GRC, we benefited from a lower cost water supply mix as a result of higher precipitation in many of our California service areas over the past couple of years.
Jim Lynch: Looking at Q4, these benefits were partially offset by lower water usage resulting from cooler, wetter weather in December of 2024 compared to December 2023.
Jim Lynch: as well as benefits from the Tax and Jobs Act tax, or TCJA, that did not recur in the fourth quarter of 2024.
Jim Lynch: Our operating revenue for the quarter increased 3.6% to $222.2 million compared to the prior year Q4 operating revenue of $214.5 million.
Jim Lynch: Now I'll dive a little deeper into Q4 earnings as we look at the earnings bridge.
Jim Lynch: As I noted, the increase in Q4 2024 revenue was driven primarily by a $24.2 million or 45 cent diluted earnings per share increase in rates billed to customers as authorized in our regulatory filings.
Jim Lynch: and an increase of 5.5 million dollars or 10 cents per diluted share in our Monterey Water Rate Adjustments Mechanism or our MRAM due to lower high tier water sales.
Jim Lynch: This was partially offset by lower unbilled revenue totaling $8.1 million or $0.15 per diluted share.
Jim Lynch: Due to lower December water usage and $19.4 million, or $0.36 per share, related to previously deferred RAM balances recognized in Q4 of 2023 that did not recur in 2024.
Jim Lynch: Q4 2024 operating expenses were $189.9 million compared to $179.3 million in Q4 of 2023. This was an increase of $10.6 million.
Jim Lynch: Following along on slide six, water production costs increased by 3.4 million dollars or 6 cents per diluted share to 73.7 million dollars, primarily due to an increase in wholesale rates and higher consumption.
Jim Lynch: An income tax benefit decreased $9.9 million, or $0.13 per diluted share, to $3.9 million, primarily due to the timing of the annual TCJA tax benefit recognition.
Jim Lynch: Turning to slide 7, our full year 2024 results benefited from the same regulatory mechanisms as the quarterly results. Annual operating revenue increased to slightly more than $1 billion in 2024 compared to $794.6 million in 2023.
Jim Lynch: Annual 2024 net income was $190.8 million or $3.25 per diluted share compared to annual 2023 net income of $51.9 million or $0.91 per diluted share.
Jim Lynch: This represents $138.9 million, or a 267.6% increase in net income year-over-year.
Jim Lynch: The 2024 revenue increase of $242.4 million was driven primarily by the cumulative impact of our 2021 California GRC decision.
Jim Lynch: including 2023 Interim Rate Relief and MRAM revenue totaling $123.9 million or $1.73 diluted earnings per share.
Jim Lynch: In addition, 2024 results benefited $122.1 million, or $1.53 per diluted share, from higher rates and increased water consumption.
Jim Lynch: Operating expenses in 2024 were $811.8 million compared to 2023 operating expenses of $717.5 million.
Jim Lynch: Following along on slide 8, this increase was primarily driven by higher water production costs of 22.2 million dollars or 31 cents per diluted earnings per share due to an increase in wholesale water rates and increased water consumption.
Jim Lynch: In addition, operating expenses were impacted by higher depreciation and amortization of $10.7 million, or $0.15 per diluted share, due to new utility plant placed in service.
Jim Lynch: Finally, income taxes increased 51 million dollars or 25 cents per diluted share due primarily to higher pre-tax income.
Jim Lynch: As a reminder, as a result of the Q1 2024 adoption of our 2021 California GRC decision,
Jim Lynch: Interim rate relief related to 2023 totaling 87.5 million dollars of revenue and 64 million dollars of net income was recorded in our 2024 operating results.
Jim Lynch: This included $20.2 million of revenue and $13.6 million of net income that was attributable to the three months ending December 31st of 2023.
Jim Lynch: Turning to slide 9, we continue to make significant investments in our water infrastructure to help ensure the delivery of safe and reliable water service.
Jim Lynch: Company capital investments in 2024 totaled a record 471 million dollars. This represents a 23% increase over our capital investments in 2023.
Jim Lynch: As a reminder, our 2024 capital investments and our estimated capital investments for the period from 2025 through 2027 do not include $226 million of estimated PFAS projects scheduled for construction through 2027.
Jim Lynch: In addition, for the period from 2025 through 2027, our estimate of capital expenditures is predicated in part on the outcome of our 2024 GRC in California and normal capital needs in our other subsidiaries.
Jim Lynch: We expect our annual capital expenditures to increase during the next five years due to the continuing need to replace and maintain our water infrastructure.
Jim Lynch: Turning to slide 10, you can see the positive impact that our record level of capital investments is having on our regulated rate base.
Jim Lynch: Our overall rate base grew to almost $2.4 billion for the year, an increase of 9.1% over 2023.
Jim Lynch: If approved as requested, the 2024 California GRC and Infrastructure Improvement Plan, coupled with the planned capital investments by our utilities and other states, would result in a compounded annual rate-based growth of around 11.7%.
Jim Lynch: This excludes the anticipated 226 million dollars in PFAS capital investments, plus any recovery offsets that are planned through 2027.
Jim Lynch: Moving to slide 11, we continue to maintain a strong balance sheet, executing on several initiatives during 2024.
Jim Lynch: In August, the CPUC issued a final decision granting CalWater the authority to issue up to $1.3 billion in new debt and equity securities.
Jim Lynch: I'll now turn the call back over to Marty for our recent dividend announcement.
Great. Thanks, Jim.
Jim Lynch: Looking on page 13, we ended 2024 paying our 320th consecutive quarterly dividend.
Jim Lynch: In January of this year, we announced an annual dividend increase of $0.08 a share plus a special one-time dividend increase of $0.04 a share, bringing the annual dividend to $1.24 a share, up from $1.12 a share.
Jim Lynch: The dividend increase for 2025 represents a 10.71% dividend increase and results in a 7.75-year compound annual growth rate for our dividend growth.
Jim Lynch: The special one-time dividend that was approved by our Board of Directors was meant to reward our shareholders as we dealt with the delayed 2021 general rate case and the financial challenges it posed to the company while we waited for rate relief. Your patience was appreciated, so thank you very, very much.
Jim Lynch: With that I'm going to turn it over to Greg to give us an update on what's happening on the regulatory side in the rig case, Greg.
Greg Milleman: Thanks Marty. Turning to slide 14, I'm pleased to report that we continue to make progress with our 2024 general rate case.
Speaker Change: As a reminder, on our third quarter call in October, we had completed the initial pre-hearing conference and a judge and commissioner were assigned to our case.
Speaker Change: We are pleased with the assigned commissioner, given his past work at the California Public Advocates, to educate the CPUC on the negative customer impacts associated with rate case delays.
Speaker Change: Since then, the Commission issued the Scoping Memo and Ruling in November 2024.
Speaker Change: We completed public participation hearings across our service area and, importantly, we saw strong support for our infrastructure improvement plans during these events.
Speaker Change: We received the California Public Advocates Report in late January. We are working with our teams internally to evaluate and respond in accordance with the California Rate Case Plan schedule.
Speaker Change: Importantly, I would like to emphasize that this response was timely.
Speaker Change: To that point, given recent decisions issued by the CPUC and our current process, we are optimistic that we will be receiving a decision on a reasonably timely basis and are pleased with the progression thus far.
Speaker Change: Before turning back to Marty, I just want to reiterate our proposal.
Speaker Change: We expect to invest $1.6 million in our districts from 2025 to 2027, including approximately $1.3 billion of newly proposed capital investments to continue providing reliable, high-quality water service.
Speaker Change: Our application includes an innovative, low-water use equity program designed to decouple revenue from water sale while keeping rates affordable and reinforcing conservation goals.
Our proposal includes rate increases to generate an additional
Good.
Excuse me one second.
$74.2 million for 2027 and $83.6 million for 2028.
Speaker Change: We are now eight months into the standard 18-month review process with the PUC. With that, I'll turn it back to you, Marty.
Speaker Change: Great, thanks. Prior to talking about a couple of things on the regulatory side, Jim, why don't we take a moment to just talk about liquidity.
Jim Lynch: Yeah, thanks. Thanks, Marty. So, turning to slide 12, we do continue to maintain a strong liquidity profile to execute both our capital plans and on our strategic investments.
Jim Lynch: As of December 31st, we had $50.1 million in unrestricted cash, $45.6 million in restricted cash, and $395 million in available credit.
And now I'll turn the call back over to Marty.
Marty: to go over our recent dividend program. Great, I covered the dividends already, but if everyone can jump to slide 15, I want to talk about our cost of capital and a couple other regulatory updates.
Marty: that are going on. First, as Jim mentioned, we got the approval to issue more debt and equity to finance our infrastructure improvement plan going into 2025 and beyond.
Marty: I want to make sure we're clear. This doesn't mean we're going to run out and raise a billion plus dollars of debt and equity today, but it does mean we have the ability to finance the capital program going forward.
Marty: and the outbound years as we continue to make improvements to infrastructure. And I think that's incredibly important as we continue to deal with wildfire hardening, sustainability and resiliency planning.
Marty: A couple other things that I think are important to note, as we announced in January, the CPUC granted our request to postpone our cost of capital filing for another year until May 1, 2026.
Marty: This effectively maintains CalWater's current capital structure through December 31, 2026, including the 10.27 current return on equity.
Marty: Along with this decision the CPUC also reauthorized the water cost to capital adjustment mechanism which potentially adjusts the rate of return when the Moody's utility bond index fluctuates by more than 100 basis points.
Marty: We appreciate the Commission's flexibility on pushing this out one more year. Obviously, with the rate case underway, we felt that our resources were better focused on the rate case versus doing a cost of capital filing at this time.
Marty: On the right hand side of the page we start talking a little bit more about other states and for those of you who have been with us for a while you know we have continued to grow our investments in Washington, Hawaii,
New Mexico, and now Texas.
Marty: Internally, we've initiated a program to be more proactive in pursuing rate adjustments in our other states. All the states that I just mentioned are historic states, meaning we have to invest the dollars, put the plant in service, start depreciating that plant, and then apply for rate relief.
Marty: Our paths forward on this, or our strategy going forward, is a dual, or a two-pronged strategy. One, the company wants to be more proactive in enabling us to recover our costs on a more timely basis.
i.e. doing more timely rate filings.
and, two, by doing this,
Marty: It provides for smaller incremental adjustments versus large, less frequent adjustments which affect rates for customers.
Marty: So, we've hired a senior rates executive into that position who now oversees the rates for all of our home states, which are really our subsidiary companies.
Marty: and we have kicked that off and it's off to the races. It's a member of Greg's team and I think the team's off to a great start. While we're talking about the subsidiary companies, I want to take a moment to talk about our growth in Texas.
Marty: I think as many of you know, we have been in that South Austin, North San Antonio market in that tech corridor.
Marty: that was up 39% year over year. In terms of committed connections, and keep in mind this is kind of a greenfield, these housing developments are rapidly being developed.
Marty: So, we have what's called a committed connection. This is where developers put money in escrow to provide the funding to connect to our system.
So, during 2024, we added almost another 2,200.
Marty: Connections to the committed list. That means we have another just about 16,000.
Marty: connections in escrow waiting to connect to our systems in that market. That continues to be the fastest growing area of our subsidiary companies is that South Austin market. So far, all of our work in that South Austin market has been on the wastewater side of the business.
Marty: Turning to the next page, I want to take a moment to talk about our leadership and emergency preparedness and emergency response.
Marty: For those of you that read our proxy, you know that one of our main goals, one of our top five main goals
Marty: is Emergency Preparedness and Emergency Response. More specifically, every year we make it a goal, add bonuses to that goal, to host a number of community EOCs, or Community Emergency Operations Center exercises.
These are very popular programs that we sponsor.
Marty: that allow multi-agency participation as well as utility first responders, utility employees, first responders, and community officials to hold drills to learn to work together better in the event of a real disaster.
Marty: These, obviously, with the wildfires that we had in Southern California, the ones we've had in Hawaii, this is a very, very popular program that yields very good results when you actually do have a disaster.
Marty: So we remain dedicated to our community outreach and our community EOC exercises that we're doing. In addition, as we mentioned on slide.
Marty: 2016, we've invested nearly $1 million over the last five years in supporting our fire agencies and helping them buy equipment that they may not have budgets for, so equipments that help save lives and help save lives.
Marty: Save Homes, etc. During 2024, we donated another $175,000 to a number of agencies in California through our Firefighter Grant Program.
Marty: As we move into the spring, spring is right around the corner, we have a very proactive wildfire mitigation plan that includes vegetation management, infrastructure upgrades, and obviously positioning our crews and backup equipment as we start moving into the fire months, which will
most likely starts as early as June this year.
Marty: Of course, as it comes to Southern California, I'm very happy to report none of our systems were directly affected by the wildfires in Southern California, although we did have a number of employees who had to evacuate their homes. All of our employees were safe, all of their homes were safe.
Marty: and more importantly, none of our systems were affected by the fire. Having said that, it is a, it was down there a couple weeks ago, the fire scar is massive, there's a lot of work that has to be done.
Marty: to make contributions to the local charities that support people on the front line who need the aid the most, and we will match those contributions.
Marty: So, going into 2025, you'll see us continue our leadership role in emergency preparedness and emergency response. We think that's one of the most important things we do, again, as we deal with the climate change reality of the world that we live in.
Marty: So, looking ahead to 2025, let's take a moment and talk about what to expect.
Speaker Change: First and foremost, as Greg and Jim both mentioned, it's the third year of a rate case for California. California is our largest subsidiary company that we operate.
Speaker Change: So this is the year we tend to see the most amount of regulatory lag, so obviously tightly managing our controllable expenses in the third year is really important.
Speaker Change: Additionally, we want to do everything that we can to keep the 2024 general rate case stable.
on schedule, as I mentioned in my opening comments.
Speaker Change: The delayed 2021 rate case was very painful for the company.
Speaker Change: and I'll apologize that the financial results are very lumpy. So we went from making $51 million one year to having this record off the charts revenue this year, but as Jim said, that is the recognition of the retroactive piece of the rates.
in California.
Speaker Change: So obviously we want to do everything we can to avoid that situation with the 2024 rate case.
and hopefully bring that into conclusion.
by the end of this year.
Speaker Change: We also want to continue to evaluate strategic growth areas through targeted domestic M&A opportunities and continue in our greenfield development in Texas, which is yielding very, very good results.
Speaker Change: And lastly, and probably most importantly, we want to continue to provide our best-in-class service for our customers, as well as water quality.
Speaker Change: So there'll be a lot happening during 2025. Obviously, the infrastructure improvement plans are big. I'm very happy with the results. And I think, again, you have to see through the clutter of the lumpiness of the results, but when really, when you strip it away.
Speaker Change: You know, you had record revenue, you had record earnings on a normalized basis, pro forma basis.
as well as record capital, record dividend growth.
Speaker Change: You know, we had no primary, secondary water quality violations. We had outstanding customer service scores. So the company is positioned very, very well going into 2025. And I look forward to sharing with you the Q1 results here in a couple months.
Speaker Change: So, Dustin, with that, why don't we open it up for questions, please?
Thank you.
Speaker Change: If you would like to ask a question, please press star and the number one on your telephone keypad. Again, that is star and the number one on your telephone keypad.
Speaker Change: We'll just get a pause for just a moment to compile the roster.
Speaker Change: And with the first question, this is coming from the line of Jonathan Reeder from Wells Fargo.
The line's open.
Speaker Change: Hey, good morning team. How are y'all? Good morning, Jonathan. Hey, Jonathan.
Speaker Change: Thanks for taking my question and congrats on a good update.
Speaker Change: First off, I just wanted to get your thoughts on the public advocate's position in the 2026-2028 GRC.
Speaker Change: and, you know, what you believe the potential is to reach a settlement, you know, particularly on the key items like CapEx and expenses, obviously, you know, decoupling might be a little more controversial.
Yeah, Greg, you want to take that one first?
Speaker Change: Yeah, certainly Jonathan. This is kind of, you know, you've been around so you've seen it. It's traditionally always a pretty far margin where public advocates will come in
Speaker Change: But in light of some of the activity that's been happening recently with the other water companies I believe that we will have an opportunity to sort through some of this stuff and settle
Speaker Change: those settlement discussions by providing additional evidence for the record. So optimistic that things could go well.
Speaker Change: Yeah, and I just add to that, Jonathan, you know, one of the pivots the company's made over the last 10 years is really taking a risk-based approach to our capital program. So obviously the biggest part of our request to the Commission is really the capital dollars that we need.
Speaker Change: to continue to make the infrastructure improvement changes that we need as we adapt to the climate change and try to improve sustainability. So because that program is very risk focused, it's very risk detailed, and we look for the highest rates of return that eliminate the highest amount of risks.
Speaker Change: A very good debate. I'm picking my words carefully as we go into negotiations around these key things, but but we're very keenly focused on risk mitigation.
Speaker Change: and adapting for our future, and I think that is really, really important.
as we just saw in Southern California.
Speaker Change: you know another big wildfire you know we've got to continue wildfire hardening and and readying our systems for these changes that we're dealing with that are dealing with that are dealing with climate change.
Speaker Change: I agree with Greg so far. I think we're on track. We got the advocate's report. We're going through it. We're working on our responses now. I've been very happy with the assigned commissioner because every indication we've seen from him so far is he wants to try to keep
Speaker Change: the GRC on course. But the next big lift after we file our rebuttal is really getting into those settlement discussions that will take place early in the summer months and see where we end up.
Speaker Change: Actually, on the schedule right now, Jonathan, it's for April, where we work for settlement, and then hearings are scheduled for May.
Speaker Change: Okay, and I mean there's nothing that prevents you from reaching a settlement after the hearings if one isn't able to be reached beforehand.
Correct. Correct. Correct. Yeah. Okay.
Speaker Change: Marty, or maybe this is for Jim, is the, you know, roughly $85 million of equity issued in 24 under the ATM a good annual run rate to assume in the years ahead, or how should we be thinking about annual equity needs?
Speaker Change: to support, you know, the proposed, and I know it's just proposed, 2025 to 2027 CapEx and rate-based, you know, budget.
Speaker Change: Yeah, I think it's a great question, Jonathan. So the current ATM expires in April. So we'll be looking to renew the current program after we're actually in the process of taking a look at it now. And as part of that, we're
Speaker Change: doing an assessment in terms of what we think we would need in terms of
Speaker Change: the amount of the shelf in order to support the capital investments as we move forward. Clearly, as we work through the rate process, we'll assess exactly where we want to land relative to the...
Speaker Change: to see what we need to support that program. So I think more to come on that. I will tell you that, you know, we...
are targeting to kind of raise equity.
Speaker Change: only to the extent that it is necessary for us to maintain a consistent capital structure at the group level relative to what we are authorized in, specifically in California, but in our operating utilities.
Speaker Change: I think that's that's really our focus in terms of how we plan to use it going forward. So really
Speaker Change: I'm trying not to give you a number, because it's going to be really opportunistic in terms of where we need it relative to support the CapEx plan or any other capital initiatives, as well as how we are specifically tracking relative to our cap structures.
Speaker Change: And Jim, I think it's probably fair to add to that too. I mean, it, I mean, the balance sheet's in great shape. We have plenty of liquidity. Our lines of credit are very, very strong. Our credit rating is outstanding.
Speaker Change: It's also a function of what the capital needs are, what's happening in the short-term interest rate markets, right, and what the long-term capital needs are. So, you know, hopefully we continue to get some amount of stability in the interest rate market as well as the capital markets, you know, as they get more choppy.
as we've seen kind of in the previous.
Jim Lynch: kind of 18 months, you know, the interest rates going up certainly help raise the weighted average cost of capital for everything. And so part of Jim's job is, you know, to be a little opportunistic to look at these places where we can jump in and raise equity, our debt, when it is needed, and get it at the lowest possible.
Jim Lynch: Yes, certainly we are going to keep an eye on the markets and take advantage of when the best time is to be in both the debt and the equity markets to support our programs.
Okay, and remind me, I mean, I think right now...
Jim Lynch: At the group level, you're over-equitized relative to what's authorized in California, is that correct? Where maybe
You know on a go-forward basis
Jim Lynch: You know, maybe you don't need as much as that 85 million annually. Is that fair?
Jim Lynch: Yeah, I think that's fair. Again, I hesitate to put a number on it, but it is our objective to bring that, as you described it, over-equitization down to be more consistent with our OPCOs, and doing that, as Marty said, in the most efficient manner.
Speaker Change: Excellent. Okay, and then I think Marty, you were the one that discussed the growth in Texas, you know, thus far noted that, you know, so far all work has been on the wastewater side. Do you have, you know, aspirations or near-term plans to move into water there?
Marty: Yeah, we do. If you recall, Jonathan, we put a press release out, I want to say it was 18 months ago, so technically two years ago.
Marty: where we partner with the Guadalupe Basin River Authority to extend their water pipeline into that South Austin market where there's no water.
Marty: So as that pipeline gets built, we anticipate that we will get into the water business in the South Austin market when that pipeline is completed. And that's a public-private partnership.
Marty: and it's a number of municipal players plus ourselves and the Guadalupe Basin River Authority. And I'd have to go back and look at the project schedule, I believe it gets into 2026.
starting to be delivered in that South Austin market, so
Speaker Change: As soon as that happens, obviously, there's so much development going on in that system, in that area. If people haven't been out there, you know, Jim and I, as well as a number of people at Cal Water, we grew up in Silicon Valley during the Silicon Valley boom.
Marty: which is pretty remarkable for all of us working here. It was a great time to be in the Valley and just things were taking off. It was a great job market for everyone.
Marty: But the explosion of growth in that South Austin corridor, I would say, is probably
Marty: tenfold what the explosion was in Silicon Valley back in the 80s.
Marty: and for anyone who has lived in Silicon Valley during the 80s.
Marty: Think about that. I mean, it's just it's just there's so much growth going on. I was out there the end of January and and plant that we we just put in
Marty: already has hundreds of customers connected to it. And we're looking at the plant expansion to the next level of the plant, because things are just growing so fast. So yes, we will get into water in that South Austin market. We're making investments in pipelines right now to bring that water into that market. And then in the meantime, we're gonna continue to grow the wastewater business in that area.
Speaker Change: Okay, and on the water side, I mean, would it be similar where, you know, it's kind of these...
Speaker Change: agreements with developers, you know, kind of, I think you'd call it, you know, greenfield developments.
Speaker Change: Does that help you think about it on the waterfront? Yeah, that's exactly what it is. And this is really kind of greenfield development. We partnered with another company that specializes in it. They're very, very good at it, BBRT.
is the company name.
Speaker Change: and it's basically greenfield development and again I'd encourage if anyone's interested in this you know give me a call be happy to take you out there but you drive that corridor and the amount of growth going on both residential but also commercial is it's just mind-boggling
Cutler: Okay, great. Now I appreciate that, Cutler. And then last one for me is a housekeeping item. The release mentioned like $87.5 million of revenue, $64 million of net income, you know, from the retroactive benefit of the delayed GRC decision.
Speaker Change: Does that fully capture the EVA offset, too, because I was thinking, you know, you previously said the retroactive benefit was, you know, roughly a dollar, whereas that $64 million implies like nine or ten cents higher.
Speaker Change: I'm sorry Jonathan I missed the first part of your question if you could just kind of go back through that
Speaker Change: Yeah, I mean, the release mentioned a $64 million net income, you know, retroactive benefit from the delayed GRC decision, you know, that was recorded in Q1.
Speaker Change: Is that fully captured? I thought there was also like an ICBA offset and, you know, that's kind of how you got to roughly a dollar whereas that 64 cents, or sorry, the 64 million net income number, you know, applies something higher, more like, you know, $1.10.
Speaker Change: It captures the major components of it. There were some other things that
Speaker Change: have, we didn't really discuss on the call, but impacted the overall contribution of the 2021 rate case into the 2024 results. And I can walk you through the smaller numbers to get you to that $1.10 number.
Okay, so I mean...
Speaker Change: So $1.10 is more accurate, so we should be thinking about the $3.25 less the $1.10. I think so, yes. I focus on the $1.10 number.
Speaker Change: Excellent. All right. Thanks so much, guys. I appreciate your patience in answering all my questions.
Thank you, Jonathan.
Thank you.
Speaker Change: Again, if you'd like to ask a question, please press star and the number 1 on your telephone keypad.
Speaker Change: And our next question comes from the line of Davos Sunderland from Baird.
The line is open.
Davos Sunderland: Good morning, guys. Congrats on a great update, and thank you for taking my questions.
Absolutely, how are you?
Speaker Change: I'm doing well. Thank you. And I guess I'll just start Jonathan took a lot of my questions and thank you for all the color on those Maybe if I could just add on to one that he was asking about Texas and your comments Marty about, Texas
Speaker Change: Maybe more broadly with the liquidity profile that you guys have, how are you thinking about acquisitions potentially in 2025 and I guess the business development pipeline more broadly? And then I have one housekeeping after that.
Speaker Change: Yeah, no David's great question and and you know, I just want to reference back to that rate base growth slide that Jim mentioned You know, obviously, you know, what we're in a really really good spot right now, you know, we we have a almost a 12% growth rate on rate base
Speaker Change: That does not include the capital investments we'll be making over the next three to four years on PFAS and PFOA.
Speaker Change: So, you know, from a growth perspective, a rate-based growth perspective, we need to stay really focused internally on executing our plan because we're running at, I think, the fastest clip that
Speaker Change: Tellwater's been at since I've been here, and I think the fastest clip that it's been at since probably the 1980s.
in the late 70s, but that.
Speaker Change: Right now, we're just in a great spot. So for us to lose focus on the core business.
Speaker Change: It has to be a really good opportunity. Now, having said that, you know, obviously we are going to continue to look and we'll be very, very strategic. We are interested in expanding our service territory and we do have plenty of capacity on the balance sheet.
Speaker Change: But the primary growth engine of Cal Water has been and will continue to be that investment through our infrastructure improvement plans on our existing infrastructure and then we'll supplement that
Speaker Change: with Strategic M&A and Targeted Markets. So if opportunities are there and it looks like we can make money on them,
Speaker Change: and we can add value from a customer perspective and a regulatory perspective, we'll be all over it. If there's opportunities where we cannot make money, or it's a poor regulatory market, or there's not a lot of room to build out, we're probably going to be less interested.
Speaker Change: So, Shillam Patel does a great job running our business development activities.
Speaker Change: He partners with Sean Bunting, our general counsel, who also has a lot of experience in utility M&A, so we have a great team working on this area.
Speaker Change: But we will continue to be strategic in our focus and
Speaker Change: You know, keep an eye on the real family jewel here, the company jewel, is that rate-based growth and making sure we can hit our targets around that and supplementing our growth with strategic M&A.
Speaker Change: And I think I'd just add one thing, Davis, in that regard.
Speaker Change: You know, BVRT was a new, or Texas is a new platform for us, and it's a new platform in a very strong market, and the greenfield developments that we are involved in down there are showing tremendous growth, as Marty mentioned. It's everything that we would want in an M&A.
Speaker Change: activity or opportunity that that we're getting by being in that market. So I know we've described it as a greenfield development that we've been involved in from from day one but you can really take a look at it as if it's us going into a new market
Speaker Change: with a great new platform and an opportunity for significant growth, and that's right on. It checks a lot of boxes, if you will, in terms of what to look for in terms of M&A activity.
Yeah, Davis, I mentioned I was in Texas
Speaker Change: The end of January, and we had an employee get together and a number of their employees were like, Oh, Marty, you know, God, we feel a little bad that we only had, you know, almost a 17% growth rate year over year. And because the growth was in the previous years was even bigger than that.
Speaker Change: Dang, you know if we can maintain a 16% growth rate I will be the happiest CEO in the water space. You know, very happy with that. Let's maintain our cadence
Speaker Change: You know, we got all those developers, fees, and escrow. We have to get that, you know, 15,000 to 16,000 customers connected to our system. They pay their fees.
Speaker Change: So we have to have those systems ready to go, and let's just keep building out the system and stay focused. So, it's kind of funny, they were like, you know, we wish we had a little bit more growth that we could report during the year. I'm very happy with that 16%, almost 17%.
Speaker Change: Absolutely. Thank you, Martin. Thank you, Jim. I got you loud and clear. Maybe then just one other quick one. You mentioned in the first part of your first response, Martin, you spoke about PFOA and PFAS not being included.
in the CapEx plans and I guess
Speaker Change: Why is that? Is it as simple as when you went through the general rate case, those costs were estimated yet, or is there a reason you think about those differently? And I guess, how should we think about the cadence of those?
are spending on those upgrades.
Speaker Change: Thanks guys. Yeah, I'll start and then I'll have Greg kind of jump in as well. So one, it's a new water quality standard, right, that was set out by the EPA.
EPA, so that's number one it was new.
Speaker Change: Number two, we had to go out and survey all of our water sources.
Speaker Change: And, you know, that sounds like an easy concept on the front line, but we have over, you know, almost 1,200 wells that we have to go out and do the testing for PFOA, PFOS, we have to identify the wells, etc.
There was a certain amount of uncertainty.
with how big is the program going to be.
Speaker Change: and then ultimately you had some uncertainty coming from the EPA. When were they going to adopt the guidelines? How are the states going to adopt the guidelines? So, for example, in California, California gave us a memo account.
Speaker Change: which if you look at that criteria of it's you know, it's it's known but it's uncertain and timing is not known So the capital cost and the timing is not quite known yet. It qualifies for memo account
Speaker Change: So, we're lucky we have a memo account in California, you know, and the three states we got to deal with with PFOA and PFOS, it's really California, it's Washington, and it's New Mexico. Those are the areas that we're doing the most work in.
Speaker Change: So, it'll evolve. Obviously, we're going to run as a corporate program, right, because it is a new water quality initiative and standard. And our goal is to meet and exceed those water quality standards every day that we operate in. So,
Greg Milleman: That's why it's kind of outside the rate case is because of the uncertainty of timing and we still have to estimate the capital But the estimates are still moving around a little bit But we're starting to hone in on what those numbers going to look like. Greg, anything you want to add on that?
Greg Milleman: Actually, I was going to, but you wrapped it, and you wrap up, you hit it off. It's really getting, nailing down the estimates. That was the direction we got from the commission.
Thank you. Thank you.
Super helpful, guys. Thank you so much.
Thank you.
Speaker Change: Seeing as there are no more questions in the queue, that concludes our question and answer session. I will now turn the call back over to our CEO, Martin Kropelnicki for closing remarks.
Speaker Change: All right, Dustin. Thank you. Well, everyone. Thanks for taking time today. I know it's earnings week and a lot of people are releasing Jim and I will be around the rest of this week and next week if anyone has questions Please feel free to to reach out to us and we'll answer them any way that we can
Speaker Change: It's nice to have 2024 closed and in the rearview mirror, a lot going on in 2025 that we're excited about, and we look forward to reporting our results at the end of the first quarter, the end of April. So thank you very much for joining us today. Have a great day and be safe. Thank you.
Thank you.