American States Water Company Price & Performance (AWR)

Statements made on this conference call speak only as of the date of this call and except as required by law, the company does not undertake any obligation to publicly update or revise any forward looking statement. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with Generally Accepted Accounting Principles or GAAP in The United States and constitute non GAAP financial measures under SEC rules. These non GAAP financial measures are derived from consolidated financial information are not presented in our financial statements that are prepared in accordance with GAAP. For more details, At this time, I will turn the call over to Bob Sprouse, President and Chief Executive Officer of American States Water Company. Thank you, Michael. Welcome everyone and thank you for joining us today. I'll begin with a discussion of the year, Eva will then discuss some financial and then I'll wrap it up with updates on regulatory activity ASUS dividends and then we'll take your questions. Let's first start with a look at 2024. On the regulatory front, we are very pleased to have received final decisions from the California Public Utilities Commission or CPUC last month for both our water and electric utility subsidiaries, Both decisions represent constructive regulatory outcomes and enable us to continue investing in our water and electric infrastructure for safe and reliable services to our customers for generations to come.

Will provide more details on these decisions We finished 2024 with very strong financial results.

Our reported earnings per share for the full year of 2024 we're $0.19 lower compared to the prior year earnings per share were $0.32 higher than adjusted 2023 earnings. Which exclude favorable variances related to the receipt of final decisions in the Water General Rate case and cost of capital proceedings in June of twenty twenty three. Excluding the 2023 adjustments, the increase in adjusted earnings for the full year of 2024 it's primarily driven by rate increases in both the water and elect utilities In the commencement of water and wastewater operations, at two new military bases, and successful economic price adjustments in our contracted services business. Additionally, our Water Utilities segment recorded a tax benefit following the final decision in its general rate case. These increases were partially offset by higher operating and the dilutive effects from the issuance of equity under American States Waters at the market offering program, which decreased consolidated earnings by approximately $0.04 In 2024, we invested $235,500,000 in infrastructure at our regulated utilities reflecting our strong ability at to execute our capital plans. ASUS, our contracted services business, secured $56,500,000 in new capital upgrade awards with projects scheduled for completion through 2027. Both are record highs for our regulated utilities and ASUS.

At ASUS, we began work under two new military contracts serving new bases on the East Coast further expanding our footprint of managing water and wastewater systems for the U. S. Government, Merit and Sage Water achieved a return on equity of 14.1 and we increased our dividend to shareholders by 8.3%. Marking seventy consecutive years of annual dividend increases. The 14.1% earned return on equity was achieved despite a 14.2% increase in our average consolidated equity balance between the two years. Some of the increase in the equity balance is due to the stock issued under the At the Market program. These accomplishments compare very favorably to other utilities and we're very proud of our long standing track record of Overall, it was a productive year which sets the stage for future growth And of course, we continue to deliver safe and reliable service to over 1,000,000 people in 10 states no small task. And one that remains a key driver for the entire organization. With that, I'll turn the call over to Eva to discuss earnings and liquidity. Thank you, Bob, and hello, everyone. Let me start with our fourth quarter results Recorded consolidated earnings were $0.75 per share for the quarter compared to $0.55 per share for the fourth quarter of twenty twenty three.

For our water utility, Golden State Water, reported earnings were $0.52 per share as compared to $0.41 per share last year.

The $0.11 per share increase in 2024 was largely due to an increase in third year water rates and overall increase in the authorized rate of return and a tax benefit recorded in fourth quarter as a result of receiving the final decision connection with Golden State Water's general rate case proceedings. This increase is partially offset by higher operating and interest [indiscernible] and lower gains generated from investments held for retirement plan. Lastly, there was a decrease in earnings of approximately $0.01 per share due to the dilutive effect from the issuance of equity on the American States Water as a market offering program. Our electric segment's earnings were $0.13 per share for the quarter as compared to $0.07 per share for 2023. A $0.06 per share increase primarily due to receiving the final CPC decision on the electric generate case. With new rates retroactive to January 1, 2023. Earnings from its U. S. Decreased $0.01 per share for the quarter largely due to an increase in operating expenses some of which was due to timing. Partially offset by increase in management fee revenues due to commencement of operations of the water and wastewater system [indiscernible] And successful resolution of economic price adjustments at the LAC basis Consolidated revenue for the quarter increased by $717,900,000.0 as compared to 2023.

Revenues for the Water segment increased by $5,100,000 largely due to an increase in the third year awarded rate and an increase in authorized rate of return on rate base in 20 Revenues for the electric segment increased by $10,000,000 mainly due to the impact of the retroactive new electric grades for the full year of 2023, and 2024. Revenues from SUS increased $2,300,000 primarily due to higher management fee revenue as I just mentioned. Turning to Slide 10. And looking at total operating expenses other than supply costs, consolidated expenses increased by $13,100,000 compared to 2023. This increase included the impact of the electric generator case recorded in the fourth quarter of twenty twenty four. Which reflected an $8,200,000 increase in operating expenses. Primarily due to higher administrative and general and maintenance expenses partially offset by the retroactive impact of a lower overall composite depreciation rate In the 2023 and 2024 revenue requirements. Addition, increase was due to higher overall labor costs maintenance expense due to timing, and an increase in depreciation expense largely at Golden State Water and property tax expenses. Both of which are impacted by the increased capital expenditures for our regulated utility. The increases are partially offset by a decrease a decrease in Golden State Water's other operation related expenses resulting from receiving the recovery of previously incurred costs.

And lower SUS construction expenses. Other income net of other expenses decreased by $1,600,000 in the fourth quarter compared to last year. Largely due to lower gains recorded on investments held to fund a retirement pack. The decrease was partially offset by the recording of CPU allowed return during construction for electric segment electric segments as well as other projects. Slide 11 shows the ETS bridge comparing reported EPS for the fourth quarter of twenty twenty four against the same period for 2020. Great. This slide reflects our full year earnings per share by segment as reported and adjusted. Consolidated earnings for the full year of 2024 as recorded were $3.17 per share compared to $3.36 per share for 2023. However, included in the results for 2023 were $0.38 per share related to the impact of retroactive rates from the finance decision, the water GRC for the full year of 2022. And the reverse of $0.13 per share for revenue subject to refund. Originally recorded in 2022 as a result of the final cost of capital decision in June of twenty both items related to our water segment. Excluding the two items just made recorded and adjusted consolidated earnings for 2024 were $3.17 per share as compared to adjusted earnings of $2.85 per share for 2023.

An increase of $0.32 per share. Please refer to our press release Form 10 ks filed yesterday for more details. On our full year. Turning to liquidity on Slide 13. Net cash provided by operating activities was up hundred and $98,700,000 2024 as compared to $67,700,000 for 2023. The increase in operating cash flow was primarily as a result of Golden State Water's having implemented new rates in 2023 and 2024. The collection of surcharges to recover retroactive revenues from 2020 through July of twenty twenty three. And higher water consumption in 2024. The increase in cash flows from operating activities resulted from differences in the timing of billings and cash receipts for construction work at military bases [indiscernible] As well as the timing of expenditure payments. For investing activities, as Bob mentioned earlier, our regulated utility invested $235,800,000 On company funded capital projects, in 2024 and we project company funded capital expenditures to reach $170,000,000 to $210,000,000 for 2025. [indiscernible] American States Water's pet market offering program to sell common shares remain ongoing as these programs allow the company at its own discretion to sell up to $200,000,000 over a three year period. During 2024, American States Water raised proceeds of $88,700,000 net of issuing costs and legal costs incurred.

American City Water's current American States Water currently maintains a credit rating of A stable with standard and poor global ratings or S and P. While Golden State Wali maintains A plus stable rating with S and P and A2 stable rating with Moody's Investors Each of these ratings have been affirmed during 2024. These are some of the highest credit ratings in The U. S. Investor owned water utility. With that, I'll turn the call back to Bob. Thank you, Eva. I'll begin with Golden State Water's general rig case. On January thirty of this year, the CPC issued a final decision in connection with the general rate case. Among other things, the decision authorizes Golden State Water to invest $573,100,000.0 and capital infrastructure over the three year capital cycle. This includes $17,700,000 of advice recovery during the second and third year attrition increases when those projects are completed, In addition, the approved settlement agreement includes $58,200,000 of advice letter capital projects that began construction in 2023 that we expect to file for revenue recovery during the second and third year attrition increases when those projects are completed. For all of the Advice Letter projects, Golden State Water will be allowed to accrue interest during construction at the adopted cost of debt, and recover the full rate of return including all applicable components of the revenue requirement after the assets are placed in service up until the assets are included in customer rates.

Excluding revenues for advice letter capital projects, adopted operating revenues less water supply costs for 2025 are projected to increase by approximately $23,000,000 when compared to 2024. In addition, there are potential additional revenue increases of for each of the years 2026 and 2027, based on inflation factors, without factoring in the revenues from those advice letter capital projects.

The final decision also adopts Golden State Water's recommended sales forecast a supply mix that splits the difference between gold and safe waters [indiscernible] and accepts the sales mechanism proposed by the company. In addition, there were three other regulatory mechanisms that Golden State Water requested.

That were litigated and addressed in the decision. The decision however rejected a full sales and revenue decoupling mechanism and a full supply cost balancing account and instead ordered the transition to a modified rate adjustment for sales and an incremental cost balancing account for supply costs. The decision also rejected a supply mix adjustment mechanism and a request to modify the existing PFAS memorandum account to track carrying costs on capital investments needed to comply with the new PFAS regulation.

The new mechanisms authorized in the decision are effective 01/01/2025. Final decision approved Golden State Waters proposed rate design associated with the modified rate adjustment mechanism which moved more revenue recovery into the fixed service charge then under the rate design associated with the company's full revenue decoupling mechanism. On January 14, of this year, the CPUC approved a request to defer the cost of capital application by one year to 05/01/2026.

With the deferral, Golden State Water will retain an authorized return on equity of 10.06% and a 57% equity ratio through the end of twenty twenty six.

On January sixteen of this year, our electric utilities subsidiary received a final CPU decision in its general rate case that approves the settlement agreement between Bear Valley Electric Cal Advocates and the other intervener in the proceeding in its entirety. The proceeding sets rates retroactive to January 1, 2023, and determines electric rates for the years 2023 through 2026.

The decision among other things allows Bear Valley Electric to invest the $75,600,000 in capital infrastructure, including at least $23,100,000 of device litter projects over the four year rate cycle It adopts a return on equity of 10% and a 57% equity ratio. And it approves recovery of requested capital expenditures, and incremental operating costs.

Incurred prior to 2023 in connection with its wildfire mitigation plan. These costs were not previously included in customer rates. In addition, the settlement provides increases in the adopted operating revenues of $2,200,000 for 2025 and $3,300,000 in 2026.

The rate increases for 2024 through 2026 are not subject to an earnings test. Previously mentioned advice letter projects of at least $23,100,000 are expected to generate additional annual operating revenues of approximately $3,000,000 when the respective projects are completed placed in service and filed for recovery in customer rates. These projects also accrue allowance for funds used during construction, that will further increase the revenue requirement. Turning our attention to Slide 17, we present the growth in Golden State Waters adopted average water rate base for 2018 through 2024, which increased from $752,200,000 in 2018 to $1.357500000.0 dollars in 2024, That is the compound annual growth rate of 10.3% for the six year period using 2018 as the base year for the calculation.

Home State Water anticipates a robust and sustained growth in its rate base over the next few years as a result of receiving its recent general rate case decision, that again authorizes it to invest $573,100,000 in capital infrastructure including $17,700,000 of advice there capital investments to be filed for revenue recovery during the second and third year attrition increases when those projects are completed.

In addition, it authorizes investment on certain other capital projects already under construction beginning in 02/23. Recovery of which will also be handled through a advice letter filings upon project completion. All advice letter capital projects will contribute to further growth in rate base in the second and third years. Of this cycle. Let's continue to ASUS. Which contributed earnings of $0.55 per share for the full year of 2024 as compared to $0.5 per share for 2023.

The increase was mainly due to an increase in management fee revenues resulting from the commencement of operations at the two new bases and the resolution of various economic price adjustments partially offset by higher overall operating expenses From the new basis, and a decrease in earnings of approximately $0.01 per share due to the dilutive effects from the issuance of equity under the company's at the market offering program. We're also very pleased that ASUS has received a significant increase in new capital upgrade awards in 2024 of $56,500,000 in total as compared to $25,200,000 for 2023. [indiscernible] In addition to continued work on the existing bases we serve, we remain confident that we can effectively With a solid performance we project that subsidiary to contribute $0.59 to $0.63 per share this year. I would like to turn our attention to dividends, which remains a compelling part of our investment story. Our quarterly dividend rate has grown at a compound annual growth rate or CAGR of 8.8% over the last five years through 2024 and we have achieved a ten year CAGR of 8% in the calendar year dividend payments through 2024. These increases are consistent with our policy to achieve a compound annual growth rate in the dividend of more than seven And over the long term.

I'd like to conclude our prepared remarks this morning by thanking you for your interest in American States Water And we'll now turn the call over to the operator for questions. We will begin with Jonathan Reeder, with Wells Fargo. Please go ahead. Hey, Bob and Eve. I hope you guys are well.

Thank you, John. Hi, Jonathan. Hope you are as well. Yes, hang it in there. Could you help me reconcile how much of the $0.06 electric GRC retroactive EPS benefit that was recorded in Q4 is solely related to 2023 And I saw the 10 ks mentioned like $9,800,000 of [indiscernible] For both 2023 and 2024, but it seems like some of that is offset by corresponding operating expense increases related to those years as well.

Yes, I would say I would say more of it's related to 'twenty four than 'twenty three, Jonathan. As you know, I think you know And it's interesting we had this situation on both [indiscernible] Bear Valley settlement in the Golden State settlement, public advocates was very interested in trying to move out that first year increase. And that then that's why you sort of see these advisory projects in both cases.

So Johnson, we had a substantial amount of unrecovered those capital OEM from implementing our wireframing [indiscernible] that will require recovery of amount, our projected capital O and M for 2023 and 2026.

So on top of what we need to do for those this curve vacate cycle, we also request [indiscernible] dollars to be included in base rate for this breakage cycle. [indiscernible] is $24,000,000 of CapEx related to the WiFi mitigation plan. [indiscernible] With the increases in cost to recover tree trimming costs and all the Wi Fi mitigation operating related expenses. So our first year's request was quite significant when we filed the case in 2020 So during the settlement agreement, we agreed to move certain capital projects to 2024 and beyond and file some projects and vice leather projects, which will earn AFUD while constructions So that's why the first year increased since small compared to 2024. We believe is how we can reach a settlement and mitigate the first year increase [indiscernible] Pancake to rate cases.

So that's why most of the increase you see probably is for 2024.

And as a reminder, the last rate cycle we had at Bear Valley was a five year rate cycle.

Our decision came out In that particular case, just as things were being put in place for the requirements associated to filing wildfire mitigation plans. Don't know if this is completely accurate, but think we because it was just how the rate cycles lined up, we had probably had gone the longest of any of the electrics in terms of starting the wildfire mitigation plan activities before our next rate case where we would then seek recovery of those expenditures. And so that put, I would say, a little more pressure on that first year rate increase because we had several years of wildfire mitigation plan at hadn't recovered from customers, but needed to be then included in the rate cycle for 2023 through 2020 Okay.

So would you say any of that $0.06 of the retroactive EPS benefit is related to 2023 year 2023 was pretty neutral and all the six senses then [indiscernible] Q3 of twenty twenty four.

I think the way to think about it is the majority is in is for 2024 I can't really give you a precise split on the six, but I think the way to think about it is the majority of it was the '24.

Okay.

All right.

And then, Eva, as you noted, 2024, we saw a huge increase in consolidated operating cash flows to nearly 200,000,000 Is that a good proxy for your 2025 expectations given still be collecting the retroactive revenues from the delayed 2022 to 2024 water GRC to plus some of the retroactive revenues from the electric GRC.

I think so, Johnson. It's more aligned with what going forward and 2023, I would say.

Okay. And then last question for me. How much of the remaining roughly $110,000,000 of equity under the ATM program do you anticipate issuing in 2025?

Dollars Johnson. So we like to even lay out for two year, but if we need a look [indiscernible] So I would say probably $60,000,000 for this year.

Okay.

Perfect.

Thank you so much for taking my questions. Seeing no further questions in the queue, this concludes our question and answer session. I would like to turn the conference back over to Bob Sprouse for any closing remarks.

Yes, I'd just like to wrap up the call today to by thanking everyone for their continued interest in American States American. Appreciate your interest. Have a good start to your year.

Thank you.

The conference has now concluded. [indiscernible]