California Water Service Group · NYSE:CWT
California Water Service — Q2 2020 Earnings Presentation
22 slides from California Water Service's earnings presentation, Jul 30, 2020
Slide 1: Second Quarter 2020 Results Call Presentation
Second Quarter 2020 Results Call Presentation July 30, 2020
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 ("Act"). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" tr
Slide 3: Today's Participants
Today’s Participants Marty Kropelnicki Tom Smegal Dave Healey President & CEO Vice President, CFO & Treasurer Vice President, Controller 3
Slide 4: Presentation Overview
Presentation Overview • Our Operating Priorities • Financial Results, Q2 and YTD • Financial Highlights, Q2 and YTD • Effects of the delayed California General Rate Case (“GRC”) • EPS Bridges • Updated COVID-19 Impacts • California Regulatory Update • Capital Investment Update • Business Development
Slide 5: Our Operating Priorities
CALIFORNIA WATER SERVICE GROUP a Vv ESTING FOR LIFE Our Operating Priorities ) Affordable, Excellent Service Enhanced Stockholder Value + Safe workplace & healthy lifestyles + Professional development * Effective, transparent High-Quality Water ld} Strong Brand & | & Wastewater Ss resnecrn Reputatio
Slide 6: Financial Results: Second Quarter
Financial Results: Second Quarter (amounts are in millions, except for EPS) Q2 2019 Q2 2020 Variance Operating Revenue $179.0 $175.5 (2.0%) Operating Expenses $152.0 $163.0 7.2% Net Interest Expense $11.3 $10.5 (7.1%) Net Income (Loss) $17.0 $5.3 (68.8%) EPS $0.35 $0.11 (68.6%) Capital Investments $
Slide 7: Financial Results: Year-to-Date
Financial Results: Year-to-Date (amounts are in millions, except for EPS) YTD 2019 YTD 2020 Variance Operating Revenue $305.1 $301.0 (1.3%) Operating Expenses $277.7 $295.5 6.4% Net Interest Expense $21.5 $20.3 (5.6%) Net Income (Loss) $9.4 ($15.0) --- EPS $0.19 ($0.31) --- Capital Investments $121.
Slide 8: Q2 Financial Highlights
Q2 Financial Highlights Net income decreased by $11.7 million to $5.3 million due primarily to these factors: • The company estimates it would have recorded up to an additional $29.1 million of pre- tax income in the second quarter from a timely, favorable resolution of the California GRC. o $10.9 m
Slide 9: YTD Financial Highlights
YTD Financial Highlights Net income decreased by $24.4 million to a loss of $15.0 million due primarily to these factors: • The company estimates it would have recorded up to an additional $45.8 million of pre- tax income in 2020 to date from a timely, favorable resolution of the California GRC. o $
Slide 10: Estimated Benefit of the California GRC Upon Approval
Estimated Benefit of the California GRC Upon Approval • The Company estimates the following full-year impacts for 2020 when a final decision is adopted, independent of the outcome of disputed regulatory mechanisms: Major Provisions of California GRC, annual impact* (Change from last adopted, in mill
Slide 11: Potential Impact of Disputed GRC Items in Q2
Potential Impact of Disputed GRC Items in Q2 • As shown on the previous slide, the depreciation dispute is a “pass-through” expense affecting both adopted revenue and expense. • We did not record the effect of the disputed 2020 WRAM/MCBA decoupling mechanism in the second quarter, consistent with Q1
Slide 12: EPS Bridge Q2 2019 to Q2 2020
EPS Bridge Q2 2019 to Q2 2020 $0.40 $0.35 - $0.108 $0.35 $0.30 - $0.046 $0.25 - $0.039 $0.20 - $0.037 $0.15 $0.042 - $0.028 - $0.024 $0.11 $0.10 $0.05 $0.00 * Represents a category of expense potentially related to the delayed 2018 California GRC 12
Slide 13: EPS Bridge Y-T-D 2019 to 2020
EPS Bridge Y-T-D 2019 to 2020 $0.20 $0.19 - $0.247 $0.10 - $0.31 $0.00 - $0.076 -$0.10 - $0.074 - $0.072 -$0.20 - $0.060 $0.029 -$0.30 -$0.40 * Represents a category of expense potentially related to the delayed 2018 California GRC 13
Slide 14: COVID-19 Pandemic Update
COVID-19 Pandemic Update • The Company has continued its policies and practices to protect customers and employees during the pandemic. We are designated an essential business and most employees continue to work onsite and in our communities. We are complying with local regulations in our service ar
Slide 15: Business Impacts from COVID-19 Pandemic
Business Impacts from COVID-19 Pandemic • We have seen increased customer account aging from the suspension of collection activity. o Bills outstanding more than 90 days increased to $3.4 million. Only a portion of such amounts are typically uncollectible. o The company has increased its reserve for
Slide 16: California Regulatory Update
California Regulatory Update • The CPUC extended its deadline for consideration of Cal Water’s 2018 GRC to September 30, 2020. o In order to meet this date, the Commission must issue a proposed decision by August 25. • On July 3, the CPUC issued an unexpected proposed decision in an unrelated policy
Slide 17: Q2 Capital Investment Update
Q2 Capital Investment Update • Company and developer-funded capital investments were $133.5 million in the first half of 2020, an increase of 9.5% compared to the same period in 2019. • The Company has previously estimated it would spend $260-290 million on capital in 2020. • While the Company has e
Slide 18: Business Development Update
Business Development Update • Washington Water Service closed the Rainier View transaction in early June and is working on transition activities to integrate our operations. • Hawaii Water Service is working with regulators for approval of its Kalaeloa (Oahu) and Kapalua (Maui) change of control app
Slide 19: Capital Investment History and Projection
Capital Investment History and Projection (in millions) $350 $300 $290 CAGR = 9.7% $272 $274 $275 $259 (2008-2019) $250 $229 $200 $177 $150 $131 $113 $111 $118 $116 $108 Q2 $99 $133.5M $100 $50 $0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 *2020 *2021 *2020-2021 include capital inve
Slide 20: Regulated Rate Base of CWT
Regulated Rate Base of CWT (in millions) 2020 2021 2022 CA Rate Base Settlement + Other States $ 1,581 $ 1,693 $ 1,806 $2,500 Disputed Items $ 26 $ 56 $ 86 Advice Letters Included in Settlement $ 150 $ 150 Potentially Allowable Rate Base $ 1,607 $ 1,899 $ 2,042 $2,000 $1,500 $1,241 $1,263* $978 $1,0
Slide 21: Wrapping Up and Look Ahead
Wrapping Up and Look Ahead • Management will have a regulatory focus in the third quarter, working to modify or oppose the CPUC policy decision on decoupling and anticipating a GRC proposed decision this summer. • Company operators are providing a high level of service to our customers during COVID-
Slide 22: Discussion
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