California Water Service Group · NYSE:CWT
California Water Service — Q3 2023 Earnings Presentation
24 slides from California Water Service's earnings presentation, Oct 26, 2023
Slide 1: Third Quarter 2023 Results Presentation
Third Quarter 2023 Results Presentation October 26, 2023 0
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 ("PSLRA"). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor"
Slide 3: Today's Participants
Today’s Participants Marty Kropelnicki David Healey Greg Milleman Chairman & CEO Vice President, CFO & Treasurer Vice President, Rates & Regulatory Affairs INVESTOR RELATIONS 2
Slide 4: Presentation Overview
Presentation Overview • Our Values and Priorities • Third Quarter Financial Results and Unrecorded Regulatory Mechanisms • Year-to-Date Financial Results and Unrecorded Regulatory Mechanisms • California Regulatory Update • PFAS Regulation Update • CapEx and Rate Base Tables • In Summary INVESTOR RE
Slide 5: Investor Relations Update
INVESTOR BOARD RELATIONS UPDATE 44
Slide 6: Third Quarter Financial Highlights
Third Quarter Financial Highlights Operating revenue decreased $11.3M • $29.6M decrease in WRAM and MCBA revenue as the mechanisms concluded on December 31, 2022. • Partially offset by $13.7M in general rate increases and $1.8M from reduction in revenue deferral. Total operating expenses increased $
Slide 7: Financial Results: Third Quarter 2023
Financial Results: Third Quarter 2023 (Amounts are in millions, except for EPS) Q3 2022 Q3 2023 Variance Operating Revenue $266.3 $255.0 (4.3%) Operating Expenses $201.4 $211.5 5.0% Net Interest Expense $11.3 $12.8 13.0% Net Income Attributable to CWT $55.9 $34.4 (38.4%) Diluted EPS $1.03 $0.60 (41.
Slide 8: Unrecorded California Regulatory Mechanisms
Due to delayed California 2021 General Rate Case (GRC) filing, we did not record certain regulatory mechanisms in Q3 2023 and Year-to-Date September 30, 2023: Interim Rate Memorandum Account (IRMA)*: Tracks difference between interim rates and final rates authorized by California Public Utilities Co
Slide 9: Unrecorded California Regulatory Mechanisms in Q3 2023
Unrecorded California Regulatory Mechanisms in Q3 2023 Based on current positions of parties to 2021 GRC filing, we estimated an understatement of operating revenue @ during Q3 2023 to be in the $14M – $27M range ($0.22 to $0.41 EPS ), of which $5.0M – $5.5M ($0.08 EPS@) is related to DREMA. Delayed
Slide 10: Additional Q3 2023 Highlights
Additional Q3 2023 Highlights Invested $96.9M in capital improvements during General rate increase were $13.7M during the Q3 Q3 2023, a 25% increase over Q3 2022 2023. Cal Water entered into an agreement with the California Department of Community Services & 2024 operating revenue is expected to inc
Slide 11: EPS Bridge Q3 2022 to Q3 2023
EPS Bridge Q3 2022 to Q3 2023 $1.20 $1.03 $1.00 $1.03 $0.22 $0.80 -$0.08 $0.01 $0.60 $0.60 -$0.06 -$0.06 -$0.46 $0.40 $0.20 $0.00 INVESTOR RELATIONS 10
Slide 12: Year-to-Date 2023 Financial Highlights
Year-to-Date 2023 Financial Highlights Operating revenue decreased $65.4M • $48.8M decrease in WRAM and MCBA revenue as the mechanism concluded on December 31, 2022. • $20.0M increase in revenue deferral. • $25.3M decrease in billed metered revenue, mostly due to a 5.6% decrease in customer usage. •
Slide 13: Financial Results: Year-to-Date 2023
Financial Results: Year-to-Date 2023 YTD YTD (Amounts are in millions, except for EPS) Variance Sept 30, 2022 Sept 30, 2023 Operating Revenue $645.5 $580.1 (10.1%) Operating Expenses $544.1 $538.2 (1.1%) Net Interest Expense $33.2 $37.5 12.7% Net Income Attributable to CWT $76.4 $21.8 (71.5%) Dilute
Slide 14: Unrecorded California Regulatory Mechanisms Year-to-Date 2023
Unrecorded California Regulatory Mechanisms Year-to-Date 2023 Based on current positions of parties to 2021 GRC filing, we estimated an understatement of operating revenue YTD September 30, 2023 to be in the $60M – $93M range ($0.93 to $1.45 EPS@), of which $16.0M – $18.0M ($0.25 – $0.28 EPS@) is re
Slide 15: EPS Bridge YTD 2022 to YTD 2023
EPS Bridge YTD 2022 to YTD 2023 $1.60 $1.41 $1.40 $1.20 $1.00 $0.31 $0.80 $0.60 -$0.21 -$0.06 -$0.78 $0.15 -$0.38 $0.40 -$0.25 -$0.03 $0.20 -$0.16 $0.00 INVESTOR RELATIONS 14
Slide 16: Additional Year-to-Date 2023 Highlights
Additional Year-to-Date 2023 Highlights • Invested $274.1M in capital improvements during first nine months of 2023, 23.4% increase over same period last year. • Maintained $69.0M of cash as of September 30, 2022, of which $34.3M was classified as restricted, and had additional short-term borrowing
Slide 17: California Cost of Capital Update
California Cost of Capital Update Cal Water’s Cost of Capital decision was implemented on July 31, 2023 Decision approved The California Water 2024 operating Water Cost of Capital Cost of Capital revenue is expected to Mechanism (WCCM), Mechanism triggered increase approximately which adjusts rate o
Slide 18: California General Rate Case Update
California General Rate Case Update In April 2023, Cal In June 2023, CPUC In July 2023, CPUC Water granted extended 2021 co-assigned second approval to increase GRC completion Administrative Law most customer rates date to December Judge (ALJ) to Cal by 4%, effective 31, 2023. Water’s 2021 GRC May 5
Slide 19: Other Regulatory Update
Other Regulatory Update California Financing Application Drought Cost Recovery Other GRC’s In October 2023, Cal Water filed In July 2023, Cal Water In July 2023, the a financing application with the requested recovery of Washington Utilities and CPUC to issue up to $1.3 Billion $1.4M of drought expe
Slide 20: PFAS Regulation Update
PFAS Regulation Update • In March, U.S. Environmental Protection Agency published draft Maximum Contaminant Levels (MCLs) for PFAS compounds. • Based on current information, if regulation is adopted in current form, we estimate capital investments of approximately $200M needed to comply. o Draft reg
Slide 21: Capital Investment and Depreciation
Capital Investment and Depreciation (in millions) 2015-2022 TOTAL $400 CapEx Capital Investment Depreciation 3x $360 $365 $350 $328 $299 $293 $300 DEPRECIATION $259 $272 $274 $274 YTD $250 $229 $200 $177 $150 $131 $118 $116 $133 $109 $115 $124 $100 $99 $84 $89 $77 $58 $61 $61 $64 $50 $55 $0 2012 201
Slide 22: Estimated Regulated Rate Base of CWT
Estimated Regulated Rate Base of CWT (in billions) $3.0 $2.75 $2.50 $2.5 $2.25 $1.95 $2.0 $1.82 $1.61 $1.5 $1.26 $1.24 $1.06 $1.12 $1.0 $0.5 $0.0 2016 2017 2018 2019 2020 2021 2022 2023* 2024* 2025* *2023-2025 rate base estimates include filed proposal in 2021 California General Rate Case plus estim
Slide 23: In Summary
In Summary • Results in line given delayed 2021 GRC. • Revenue shortfall in 2023 due to temporary absence of regulatory mechanisms; we anticipate potential future recognition of these mechanisms would result in additional revenue when the CPUC approves the 2021 GRC. • While we wait for regulatory de
Slide 24: Discussion
CALIFORNIA WATER SERVICE GROUP La i VEsTING FOR LIFE ¥
California Water Service Group — Q3 2023 Earnings Presentation on 6ix